Accounting Terms – Chapter 4 – Flashcards
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Current Assets
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Cash and other assets that are expected to be converted to cash or sold or used up usually within one year or less.
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Notes receivable
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Amounts that customers owe. They are written promises to pay the amount of the note and interest. They are more formal than Accounts receivable.
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Fixed or Plant Assets
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Assets that include equipment, machinery, buildings, and land.
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Current Liabilities
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Liabilities that are due within a short time (usually one year or less).
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Long-term Liabilities
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Liabilities that will not be due for a long time (usually more than a year).
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Permanent Accounts (or real accounts)
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The balances of the accounts reported on the balance sheet that are carried forward from year to year.
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Temporary Accounts (or nominal accounts)
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The balances of the accounts reported on the income statement plus the drawing account that are not carried forward from year to year.
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Closing Entries
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To close the temporary accounts with a zero balance by transferring the account balances to permanent accounts at the end of the accounting period. This process if often referred to as closing the books.
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Income Summary
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A temporary account that is only used during the closing process. It is sometimes called a clearing account.
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Accounting Cycle
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The accounting process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance.
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Fiscal Year
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The annual accounting period adopted by a business. The period used most often is the calendar year.
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Natural Business Year
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When a corporation adopts a fiscal year that ends when business activities have reached the lowest point in its annual operating cycle.
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Liquidity
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The ability to convert assets into cash.
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Solvency
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The ability for a business to pay its debts.
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Working Capital
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The excess of the current assets of a business over its current liabilities. It is calculated by taking CA-CL.
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Current ratio
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A way of expressing the relationship between current assets and currents liabilities. It is calculated by taking CA/CL.
