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account payable

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

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accounting

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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

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the most basic tool of accounting: Assets = Liabilities + Owners' Equity

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asset

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

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balance sheet

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

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board of directors

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

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capital

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another name for the owners' equity of a business

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cash

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

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common stock

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the most basic form of capital stock

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continuity assumption

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see going-concern assumption

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corporation

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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 be converted to cash, sold, or consumed during the next 12 months, or within the business normal operating cycle if longer than a year

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current liability

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a debt due to be paid within one year or within the entity;s operatinig cycle if the cycle i s longer than a year

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deficit

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negative balance in retained earnings caused by net losses over a period of years

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dividends

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distributions (usually cash)by a corporation to its stock holders

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entity

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

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ethics

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

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expenses

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

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fair value

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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

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

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financial statements

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

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financing activities

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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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fixed assets

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another name for property, plant, and equipment

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generally accepted accounting principles (GAAP)

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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 entity will remain in operation for the foreseeable future

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historical cost principle

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

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income statement

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a financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of operations

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international financial reporting standards

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accounting guidelines, formulated by the international accounting standards board (IASB). by 2014, US GAAP is expected to be harmonized with IFRS. At that time, US companies are expected to adopt these principles for their financial statements, so that they can be compared with those of companies from other countries.

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investing activities

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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

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an economic obligation (a debt)payable to an individual or an organization outside the business

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limited liability company

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a business organization in which the business (not the owner) is liable for the company's debts

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long-term debt

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

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management accounting

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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

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the merchandise that a company sells to customers, also called inventory

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net earnings

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another name for net income

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net income

answer

excess of total revenues over total expenses. also called net earnings or net proit.

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net loss

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excess of total expenses over total revenues

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net profit

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another name for net income

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note payable

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

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operating activities

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

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owners' equity

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the claim of the owners of a business to the assets of the business. also called capital, stockholders' equity, or net assets

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paid-in capital

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the amount of the stockholders' equity that stockholders have contributed ti the corporation. also called contributed capital.

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partnership

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

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plant assets

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another name for property, plant, and equipment

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property, plant, and equipment

answer

long-lived assets, such as land, buildings, and equipment, used in the operation of the business.

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proprietorship

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a business with a single owner

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retained earnings

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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

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

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shareholder

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another name for stockholder

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stable-monetary-unit assumption

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the reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar's purchasing power is relatively stable

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statement of cash flows

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

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statement of financial position

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another name for the balance sheet

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statement of operations

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another name for the income statement

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statement of retained earnings

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summary of the changes in the 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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stockholder

answer

a person who owns stock in a corporation. also called a shareholder

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stockholders' equity

answer

the stockholders' ownership interest in the assets of a corporation

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account

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

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accrued liability

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

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cash

answer

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

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chart of accounts

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list of a company's accounts and their account numbers

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credit

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the right side of an account

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debit

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the left side of an account

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hournal

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the chronological accounting record of an entity's transactions

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ledger

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the book of accounts and their balances

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posting

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copying amounts from the journal to the ledger

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posting

answer

copying amounts from the journal to the ledger

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transaction

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

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trial balance

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a list of all the ledger accounts with their balances

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account format

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

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accrual

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an expense or a revenue that occurs before the business pays or receives cash. an accrual is the opposite of a deferral

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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

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accrued expense

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an expense incurred but not yet paid in cash

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accrued revenue

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

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accumulated depreciation

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

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adjusted trial balance

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a list of all the ledger accounts with their adjusted balances

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book value (of a plant asset)

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the assets cost minus the accumulated depreciation.

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cash-basis accounting

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

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classified balance sheet

answer

a balance sheet that shoes 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 periods transactions. closing the accounts consists of journalizing and posting the closing entries to set the balances of the revenue, expense, and dividends accounts to zero. also called closing the accounts

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closing entries

answer

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

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contra account

answer

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

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current asset

answer

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

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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 financed with deby

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deferral

answer

an adjustment for which the business paid or received cash in advance. examples include prepaid rent, prepaid insurance, and supplies

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depreciation

answer

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

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liquidity

answer

measure of how quickly an item can be converted into cash

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long-term asset

answer

an asset that is not a current asset

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long-term liability

answer

a liability that is not a current liability

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matching principle

answer

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

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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

asset, liability, and stockholders' equity accounts that are not closed at the end of the period

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plant assets

answer

long-lived assets, such as land, buildings, and equipment, used in the operations of the business. also called fixed assets

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prepaid expense

answer

a category of miscellaneous assets that typically expire or get used up in the near future/ examples include prepaid rent, prepaid insurance, and supplies

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report format

answer

a balance-sheet format that lists assets at the top, followed by liabilities and stockholders' equity below

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revenue principle

answer

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

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single-step income statement

answer

an income statement that lists all the revenues together under a heading such as revenues or revenues and gains. expenses appear in a separate category called expenses or perhaps expenses and losses

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temorary accounts

answer

the revenue and expense accounts that relate to a limited period and are closed at the end of the period are temporary accounts. for a corporation, the dividends account is also temporary

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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 of earning the revenue. the obligation is to provide a product or service in the future.

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