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Adjusting Entries

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Entries that update account balances prior to preparing financial statements; a bookkeeping tool. Adjusting entries never affect cash account

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Assets

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Economic resources used to produce revenue which is expected to provide future benefit for the business

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Audit

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Detailed examination of some aspect of a company's accounting records or operating procedures in order to report the results to interested parties

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Balance Sheet

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Financial statement that reports a company's assets and the corresponding claims (liabilities and equity) on those assets as of a specific date (usually as of the end of the accounting period)

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Book Value

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Historical (original) cost of an asset minus accumulated depreciation to date

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Cash Flow Statement

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financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities

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Channel Stuffing

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deceptive business practice used by a company to inflate its sales and earnings figures by deliberately sending retailers along its distribution channel more products than they are able to sell to the public

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Closing

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Bookkeeping technique of transferring balances from the temporary accounts (revenue, expense, and dividends) to the permanent account (retained earnings).

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Common Stock

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Basic class of corporate stock that has no preferential claim on assets or dividends; certificates that evidence ownership in a company

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Cost flow assumptions

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Refers to the methods available for moving costs of a company's products from its inventory to its cost of goods sold. In the U.S., this refers to FIFO, LIFO, average, and specific identification.

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Conservatism

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A principle that guides accountants in uncertain circumstances to select the alternative that produces the lowest amount of net income.

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Cost of goods sold

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Total cost incurred for the goods sold during a specific accounting period

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Dividend

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Transfer of wealth from a business to its owners

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Earnings

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Difference between revenues and expenses; profit; net income.

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Expenses

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Economic sacrifice (decrease in assets or increase in liabilities) that is incurred in the process of generating revenue.

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Financing Activities

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Cash inflows and outflows from transactions with investors and creditors (except interest), including cash receipts from issuing stock, borrowing activities, and cash disbursements to pay dividends; one of the three categories of cash inflows and outflows reported on the statement of cash flows. This category shows the amount of cash supplied by these resource providers and the amount of cash that is returned to them.

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Gains

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Increases in assets or decreases in liabilities that result from peripheral or incidental transactions.

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General Journal

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Book of original entry in which any accounting transaction could be recorded, though commonly limited to adjusting and closing entries and unusual transactions

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General Ledger

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The set of all accounts used in a given accounting system, typically organized in financial statement order.

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Income

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Increase in value created by providing goods and services through resource transformation

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Income Statement

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Financial report of profitability; measures the difference between revenues and expenses for the accounting period (whether or not cash has been exchanged).

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Inflation

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Sustained increase in general price level of goods and services in an economy over a period of time

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Information Overload

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Situation in which the presentation of too much information confuses the user of the information

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Interest

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Fee paid for the use of funds; represents expense to the borrower and revenue to the lender

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Internal Controls

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Policies and procedures companies establish to provide reasonable assurance of reducing fraud, providing reliable accounting records, and accomplishing organization objectives

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Inventory

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Goods under production or finished and ready for sale; also stockpiles of supplies used in the business (office supplies, cleaning supplies)

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Investing Activities

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Cash inflows and outflows associated with buying or selling long-term assets and cash inflows and outflows associated with lending activities and investments in the debt and equity of other companies

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Liability

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Obligation of a business to relinquish assets, provide services, or accept other obligations.

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Liquidity

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Ability to convert assets to cash quickly and meet short-term obligations

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Losses

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Decreases in assets or increases in liabilities that result from peripheral or incidental transactions

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Matching Concept

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Accounting principle of recognizing expenses in the same accounting period as the revenues they produce, using one of three methods: "vocab term" directly with revenues (e.g., cost of goods sold); "vocab term" expenses to the period in which they are incurred (e.g., rent expense), and "vocab term" expenses systematically with revenues (e.g., depreciation expense).

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Materiality

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Point at which knowledge of information would influence a user's decision; can be measured in absolute, percentage, quantitative, or qualitative terms.

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Operating Activities

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Cash inflows from and outflows for routine, everyday business operations, normally resulting from revenue and expense transactions including interest

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Payables

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Obligations to make future economic sacrifices usually cash payments

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Prepaid Expense

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Item that has been paid for in advance

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Product Costs

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All costs directly traceable to acquiring inventory and getting it ready for sale, including transportation-in.

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Receivables

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Accounting term for amount due from a customer, employee, supplier, or other party

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Retained Earnings

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Portion of stockholders' equity that includes all earnings retained in the business since inception (revenues minus expenses and distributions for all accounting periods).

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Revenue

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Economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers

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Selling and administration costs

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Costs such as advertising expense and rent expense that cannot be directly traced to inventory; recognized as expenses in the period in which they are incurred

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Separation of duties

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Internal control feature of assigning the functions of authorization, recording, and custody to different individuals

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Shrinkage

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Decreases in inventory for reasons other than sales to customers

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transaction

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Business event that involves transferring something of value between two entities.

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Unearned revenue

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Liability arising when customers pay cash in advance for services a business will perform in the future

UF MBA financial accounting exam 1 terms – Flashcards

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