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Balance Sheet

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Reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time.

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Income Statement

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Reports the revenues less the expenses of the accounting period.

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Statement of Retained Earnings

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Reports the way that net income and distribution of dividends affected the financial position of the company during the accounting period.

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Statement of Cash Flows

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Reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing.

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Dividends

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Earnings distributed to stockholders.

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The Accounting Equation

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A=L + SE

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Assets

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Economic resources owned by the company expected to provide benefits to the firm.

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Liabilities

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The company's debts or obligations.

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Stockholder's Equity

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Indicates the amount of financing provided by the owners of the business and earnings.

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Income Statement

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Reports the accountant's primary measure of performance of a business, revenues less expenses during the accounting period.

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Accounting Period

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The time period covered by the financial statements.

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Revenues

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Earned from the sale of goods or services, as reported whether or not they have yet been paid for.

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Expenses

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Representation of the dollar amount of resources the entity used to earn revenues during the period.

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Net Income

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The excess of total revenues over total expenses (profit)

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Notes

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Descriptions of the key accounting rules that apply to the company's statements, additional details supporting reported numbers, and relevant financial information not disclosed on the statements.

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Receipts

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The entire amount of income before any deductions are made

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Cash flows from operating activities

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Cash flows that are directly related to earning income

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Cash flows from investing activities

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Include cash flows related to the acquisition or sale of the company's productive assets.

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Cash flows from financing activities

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Directly related to the financing of the enterprise itself.

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Separate Entity Assumption

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States that each business's activities must be accounted for separately from thh activities of its owners, all other persons, and other entities.

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Unit-of-Measure Assumption

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Each business entity accounts for and reports its financial results primarily in terms of the national monetary unit.

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Continuity (Going-concern) Assumption

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A business normally is assumed to continue operating long enough to meet its contractual commitments and plans.

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HIstorical Cost Principle

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On the acquisition date, cash paid plus the dollar value of all non-cash considerations (any assets, privileges, or rights) given in the exchange become the historical cost of a new asset.

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Creditors

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Entities that a company owes money to

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Retained Earnings

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Earnings that are not distributed to the owners but are reinvested in the business by management

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Materiality Exception

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Suggests that small amounts that are not likely to influence a user's decision can be accounted for in the most cost-beneficial manner.

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Conservatism Exception

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Suggests that care should be taken not to overstate assets and revenues or understate liabilities and expenses.

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Transaction

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An exchange of assets or services for assets, services, or promises to pay between a business and one or more external parties to a business or a measurable internal event such as the use of assets in operations.

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External Events

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Exchanges of assets, goods, or services by one party for assets, services, or promises to pay (liabilities) by one or more other parties.

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Internal Events

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Certain events that are not exchanges between the business and other parties but still have a direct and measurable effect on the entity.

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Account

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A standardized format used by organizations to accumulate the dollar effect of transactions on each financial statement item

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Transaction Analysis

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The process of studying a transaction to determine its economic effect on the business in terms of the accounting equation.

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Compound Entry

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Any journal entry that affects more than two accounts.

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T-Account

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A tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities.

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Debit

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An accounting entry acknowledging sums that are owing, as recorded on the left side

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Credit

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An accounting entry acknowledging income or capital items, as recorded on the right side

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Operating (cash-to-cash) Cycle

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The time it takes for a company to pay cash to suppliers, sell goods, and services to customers, and collect cash from customers.

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Time Period Assumption

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Indicates that the long life of a company can be reported in shorter time periods.

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Revenues

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Increases in assets or settlements of liabilities from ongoing operations.

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Expenses

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Decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period.

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Expenditure

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Any outflow of cash for any purpose, whether to buy equipment, pay off a bank loan, or pay employees the wages

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Operating Income

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A measure of the profit from central ongoing operations

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Investment Income

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Using excess cash to purchase stock or bonds in other companies

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Gains

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Increases in assets or decreases in liabilities from peripheral transaction (like selling land...not an operating expense, but it yields an increase in cash)

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Losses

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Decreases in assets or increases in liabilities from peripheral transactions.

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Cash Basis Accounting

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Records revenues when cash is received and expenses when cash is paid.

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Accrual Basis Accounting

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Records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments.

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Revenue Principle

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States that revenues are recognized when goods or services are delivered, there is persuasive evidence of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured.

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Matching Principle

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Requires that expenses be recorded when incurred in earning revenue

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Accounting Cycle

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The process followed by entities to analyze and record transactions, adjust the records at the end of the period, prepare financial statements, and prepare the records for the next cycle.

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Trial Balance

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A list of all accounts with their balances to provide a check on the equality of the debits and credits.

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Depreciation

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Decrease in value of an asset due to obsolescence or use

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Adjusting Entries

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Entries necessary at the end of the accounting period to measure all revenues and expenses of that period.

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Deferred Revenues

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Previously recorded liabilities that were created when cash was received in advance, and that must be reduced for the amount of revenue actually earned during the period.

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Accrued Revenues

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Revenues that have been earned but not yet recorded because cash will be received after the services are performed or goods are delivered.

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Deferred Expenses

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Previously recorded assets, such as Prepaid Rent, Supplies, and Equipment, that were created when cash was paid in advance and that must be reduced for the amount of expense actually incurred during the period through use of the asset.

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Accrued Expenses

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Expenses that have been incurred but not yet recorded because cash will be paid after the goods or services are used.

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Contra-Account

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An account that is an offset to, or reduction of, the primary account

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Earnings Per Share Computation

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Net Income/(Avg. number of shares of common stock outstanding during the period)

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Permanent (real) Accounts

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The balance sheet accounts that carry their ending balances into the next accounting period.

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Temporary (nominal) Accounts

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Income statement accounts that are closed to Retained Earnings at the end of the accounting period.

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Closing Entry

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Transfers balances in temporary accounts to Retained Earnings and establishes zero balances

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Inventory

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Tangible property held for sale in the normal course of business or used in producing goods or services for sale.

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Merchandise Inventory

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Includes goods held for resale in the ordinary course of business

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Raw Materials Inventory

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Includes items acquired for the purpose of processing into finished goods.

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Work in Process Inventory

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Includes goods in the process of being manufactured.

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Finished Goods Inventory

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Includes manufactured goods that are complete and ready for sale.

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Direct Labor

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Refers to the earnings of employees who work directly on the products being manufactured.

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Factory Overhead

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Manufacturing costs that are not raw material or direct labor costs.

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Goods Available for Sale

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Refers to the sum of beginning inventory and purchases (or transfers to finished goods) for the period

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Cost of Goods Sold Equation

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Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = CGS

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Specific Identification Method

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Identifies the cost of the specific item that was sold.

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First-In, First-Out Method

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Assumes that the first goods purchased (the first in) are the first goods sold (first out)

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Last-In, Last-Out Method

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Assumes that the most recently purchased units (the last in) are sold first (the first out)

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Average Cost Method

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Uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.

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Replacement Cost

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The current purchase price for identical goods

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Net Realizable Value

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The expected sales price less selling costs

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Lower of Cost or Market (LCM)

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A valuation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost

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Perpetual Inventory System

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A detailed inventory record is maintained, recording each purchase and sale during the accounting period

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Periodic Inventory System

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Ending inventory and cost of goods sold are determined at the end of the accounting period based on a physical count.

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