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accounts payable

answer

a liability backed by the general reputation and credit standing of the debtor

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accounting

answer

the information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers

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accounting equation

answer

Assets= Liabilities + Owners' Equity

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asset

answer

an economic resource that is expected to be a benefit in the future

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balance sheet

answer

list of an entity's assets, liabilities, and owners' equity as of a specific date

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board of directors

answer

group elected by the stockholders to set a policy for a corporation and to appoint its officers

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cash

answer

money and any medium of exchange that a bank accepts at face value

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corporation

answer

a business owned by stockholders. a corporation is a legal entity, an "artificial person" in the eyes of the law

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current asset

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an asset that is expected to converted into cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year

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current liability

answer

a debt due to be paid within one year or within the entity's operating cycle

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deficit

answer

negative balance in retained earnings caused by net loss over a period of a year

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dividends

answer

distributions by a corporation to its stockholders

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entity

answer

an organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit

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ethics

answer

standards of right and wrong that transcend economic and legal boundaries. ethical standards that deal with the way we treat others and restrain our own actions because of the desire, expectations, or rights of others, or with our obligations to them

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expenses

answer

decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues

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fair value

answer

the amount that a business could sell an asset for, or the amount that a business could pay to settle a liability

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financial accounting

answer

the branch of accounting that provides information to people outside of the firm

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financial statements

answer

business documents that report financial information about a business entity to decision makers

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financing activities

answer

activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows

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generally accepted accounting principles

answer

accounting guidelines, formulated by the financial accounting standards board, that govern how accounting is practiced

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going-concern assumption

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holds that the entity will remain in operation for the foreseeable future

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historical cost principle

answer

principle that states that assets and services should be recorded as their actual cost

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income statement

answer

a financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period

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investing activities

answer

activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows

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liability

answer

an economic obligation payable to an individual or an organization outside of the business

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long-term debt

answer

a liability that falls due beyond one year from the date of the financial statements

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managerial accounting

answer

the branch of accounting that generates information for the internal decision makers of a business, such as top executives

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merchandise inventory

answer

the merchandise that a company sells to customers

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net income

answer

excess of total revenues over total expenses

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net loss

answer

excess of total expenses over total revenues

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note payable

answer

a liability evidenced by a written promise to make a future payment

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operating activities

answer

activities that create revenue or expense in the entity's major line of business; a section of the statement of cash flows

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owners' equity

answer

the claim of owners of a business to the assets of the business

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paid-in capital

answer

the amount of stockholders' equity that stockholders have contributed to the corporation

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partnership

answer

an association of two or more persons who co-own a business for profit

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proprietorship

answer

a business with a single owner

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retained earnings

answer

the amount of stockholders equity that the corporation has earned through profitable operation and has not given back to stockholders

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revenues

answer

increase in retained earnings from delivering goods and services to customers or clients

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statement of cash flows

answer

reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing

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statement of retained earnings

answer

summary of the changes in retained earnings of a corporation during a specific period

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stock

answer

shares into which the owners' equity of a corporation is divided

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stockholders' equity

answer

the stockholders' ownership interest in the assets of a corporation

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account

answer

the record of the changes that have occurred in a particular asset, liability, or stockholders' equity during a period. the basic summary device of accounting.

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accrued liability

answer

a liability for an expense that has not yet been paid by the company

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chart of accounts

answer

list of a company's accounts and their account numbers

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credit

answer

the right side of an account

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debit

answer

the left side of an account

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journal

answer

the chronological accounting record of an entity's transactions

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ledger

answer

the book of accounts and their balances

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posting

answer

copying amounts from the journal to the ledger

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transaction

answer

any event that has a financial impact on the business and can be measured reliably

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trial balance

answer

a list of all the ledger accounts with their balances

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account format

answer

a balance sheet format that lists assets on the left and liabilities and stockholders' equity on the right

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accrual

answer

an expense or revenue that occurs before the business pays or receives cash

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accrual accounting

answer

accounting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash or not

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accrued expense

answer

an expense incurred but not yet paid in cash

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accrued revenue

answer

a revenue that has been earned but not yet received in cash

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accumulated depreciation

answer

the cumulative sum of all depreciation expense from the date of acquiring a plant asset

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adjusted trial balance

answer

a list of all the ledger accounts with their adjusted balances

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book value

answer

the asset's cost minus accumulated depreciation

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cash-basis accounting

answer

accounting that records only transactions in which cash is received or paid

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classified balance sheet

answer

a balance sheet that shows current assets separate from long-term assets, and current liabilities separate from long-term liabilities

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closing the books

answer

the process of preparing the accounts to begin recording the next period's transactions.

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closing entries

answer

entries that transfer the revenue, expense, and dividends balances from the respective accounts to the retained earnings account

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contra account

answer

an account that always has a companion account whose normal balance is opposite that of the companion account

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current ratio

answer

current assets divided by current liabilities. measures a company's ability to pay current liabilities with current assets

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debt ratio

answer

ratio of total liabilities to total assets. states the proportion of a company's assets that is finalized with debt

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deferral

answer

an adjustment for which the business paid or received cash in advance.

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depreciation

answer

allocation of the cost of a plant asset to expense its useful life

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liquidity

answer

measure of how quickly an item can be converted to cash

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matching principle

answer

the basis for recording expenses. directs accountants to identify all expenses incurred during the period, to measure the expenses, and to match them against the revenues earned during the same period

question

multi-step income statement

answer

an income statement that contains subtotals to highlight important relationships between revenues and expenses

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operating cycle

answer

time span during which cash is paid for goods and services that are sold to customers who pay the business in cash

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permanent accounts

answer

assets, liabilities, and stockholders' equity accounts that are not closed at the end of the period

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prepaid expense

answer

a category of miscellaneous assets that typically expire or get used up in the near future

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revenue principle

answer

the basis of recording revenues; tells accountants when to record revenue and the amount of revenue earned

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time-period concept

answer

ensures that accounting information is reported at regular intervals

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unearned revenue

answer

a liability created when a business collects cash from customers in advance to earning the revenue

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audit

answer

a periodic examination of a company's financial statements and the accounting systems, controls, and records that produce them. audits may be either external or internal.

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bank collections

answer

collection of money by the bank on behalf of a depositor

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bank reconciliation

answer

a document explaining the reasons for the difference between a depositor's records and the bank's records about the depositor's cash

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bank statement

answer

document showing the beginning and ending balances of a particular bank account listing the month's transactions that affected the account

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budget

answer

a quantitative expression of a plan that helps managers coordinate the entity's activities

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cash budget

answer

a budget that projects the entity's future cash receipts and cash disbursements

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cash equivalent

answer

investments such as time deposits, certificated of deposits, or high-grade government securities that are considered so similar that they are combined with cash for financial disclosure purposes on the balance sheet

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check

answer

document instructing a bank to pay the designated person or business the specified amount of money

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computer virus

answer

a malicious program that enters a company's computer system via email or other means and destroys program and data files

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deposits in transit

answer

a deposit recorded by a company, but not yet by its bank

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electronic fund transfer

answer

system that transfers cash by electronic communication rather than by paper documents

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encryption

answer

mathematical rearranging of data within an electronic file to prevent unauthorized access to information

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exception reporting

answer

identifying data that is not within "normal limits" so that managers can follow up and take corrective action.

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fidelity bond

answer

an insurance policy taken out on employees who handle cash

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firewall

answer

an electronic barrier, usually provided by passwords, around computerized data files to protect local area networks of computers from unauthorized access

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fraud

answer

an intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party

question

fraud triangle

answer

the three elements that are present in almost all cases of fraud. these elements are motive, opportunity, and rationalization on the part of the perpetrator

question

internal control

answer

organizational plan and related measures adopted by an entity to safeguard assets, encourage adherence to company policies, promote operational efficiency, and ensure accurate and reliable accounting records

question

lapping

answer

a fraudulent scheme to steal cash trough misappropriating certain customer payments and posting payments from other customers to the affected accounts to cover it up.

question

lock-box system

answer

a system of handling cash receipts by mail whereby customers remit payment directly to the bank, rather than through the entity's mail system

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misappropriation of assets

answer

fraud committed by employees by stealing assets from the company

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nonsufficient funds check

answer

a check for which the payer's bank account has not enough money to pay the check

question

operating budget

answer

a budget of future net income. projects a company's future revenue and expenses.

question

outstanding checks

answer

a check issued by the company and recorded by its books but not yet paid by its bank

question

password

answer

a special set of characters that must be provided by the user of computerized program or data files to prevent unauthorized access to those files

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