Financial Accounting 15th edition Chapter 4-5 – Flashcards
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Accrue
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To grow or accumulate over time; for example interest expense
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Accumulated Depreciation
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A contra-asset account shown as a deduction from the related assets account in the balance sheet. depreciation taken throughout the useful life of the asset is accumulated in this account.
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Adjusted trial balance
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A schedule indicating the balance in ledger accounts after end of period adjusting entries have been posted. the amount shown in the adjusted trial balance are carried directly into financial statements.
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adjusting entries
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entries made at the end of the accounting period for the purpose of recognizing revenue and expense that are not properly measured journalizing transactions as they occur..
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book value
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the net amount at which an asset appears in financial statements. for depreciable assets. book value represents cost-accumulated depreciation also called carrying value.
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contra-asset account
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an account with a credit balance or deducted from an asset account to produce the proper balance sheet amount for the asset.
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Depreciable Assets
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physical objects with a limited life. the cost of these assets is often recognized as depreciation expense.
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Deprecation
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the systematic allocation of the cost of an asset to expense during the periods of its useful life.
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Immaterial
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something of little or no consequence. immaterial items may be accounted for in the most convenient manner without regard for other theoretical concepts.
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Matching principle
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the accounting principle of offsetting revenue with the expenses incurred in producing that revenue. requires recognition of expenses in the periods that the goods and service are used in the effort to produce revenue.
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materiality
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the relative importance of and item or amount. items significant enough to influence decisions are said to be material. items lacking this importance are considered immaterial. the accounting treatment accounting to immaterial items may be guided by convince rather than by theoretical principles.
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prepaid expenses
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Assets representing advanced payment of the expense of future accounting periods. as time passes adjusting entries are made to transfer the related cost from the asset account to an expense account.
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realization principle
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the accounting principle that governs the timing of revenue recognition. basically the principle indicates that revenue should be recognized in the period that it is earned.
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straight-line Method of depreciation
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the widely used approach of recognizing an equal amount of depreciation expense in each period of a depreciable assets useful life.
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Unearned revenue
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An obligation to deliver goods or render services in the future stemming from the receipt of advanced payment.
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Usefull life
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the period of time that a depreciable asset is expected to be useful to the business. this is the period over which the cost of the asset is allocated to depreciation expense.
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adequate disclosure
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the generally accepted accounting principle of providing with financial statements any information that users need to interpret those statements properly.
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after-closing trial balance
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A trial balance prepared after all closing entries have been made. consists only on accounts for assets, liability, and owners equity.
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closing entries
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journal entries made at the end of the period for the purpose of closing temporary accounts (revenue, expense and dividends accounts) and transferring balances to retained earnings.
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current assets
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cash and other assets that can be converted into cash or used up within a relatively short period of time without interfering with normal business.
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current liabilities
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existing obligations that are expected to be satisfied with a company's current assets within a relativity short period of time.
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general ledger software
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computer software used for recording transactions maintaining journals and ledgers, and preparing financial statements.
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Income summary
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the summary account in the ledger to which revenue and expense accounts at the end of the period. the balance (Credit for net income, debit for net loss) is transferred to the retained earring account
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interim financial statements
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financial statements prepared for periods of less than one year( including monthly and quarterly)
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notes (accompanying financial statements)
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supplemental disclosures that accompany financial statements. these notes provide users with various types of information considered necessary for the proper interpretation of the statements.
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financing activities
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A category in the statement of cash flows that reflects the results of debt and equity financing transaction. (creditors loaning money, owner investment and repaying them)
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operating activities
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a category in the statement of cash flows that shows the cash effects of revenue and expense transactions that are included in the income statement.
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investing activities
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A category in the statement of cash flows that shows the cash effects of purchasing and selling assets
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net income percentage
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net income / total revenue = ?
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Average stockholders equity
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(Starting stock holders equity + Ending stockholders equity) / 2 = ?
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return on equity
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Net Income / Average stock holders equity = ?
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Working capital
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Current assets - Current liabilities = ?
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Current Ratio
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Current Assets / Current Liabilities = ?
