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Accounting Key Terms Chp 4 & 5
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38
Accounting
Undergraduate 2
03/29/2011

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Term
Accounting Cycle
Definition
Analyze Transactions
Journalize
Post
Prepare Unadjusted trial balance
Adjust
Prepare adjusted trial balance
Prepare statement
Close
Prepare post-closing trial balance
Reverse (optional)

REPEAT
Term
Classified Balance Sheet
Definition
Current Assets
Long-term Investments
Plant Assets
Intangible Assets

CUrrent Liabilities
Long-term Liabilities

Equity
Term
Closing Entries
Definition
Always debit income summary

Consists of closing EXPENSE, CAPITAL, and WITHDRAWAL accounts which are not permenent accounts, revenue accounts get closed with a debit to counteract the expenses account, INCOME SUMMARY IS A CREDIT INSTEAD OF DEBIT FOR REVENUE.
Term
Current Assets
Definition
Assets which are mostly liquid like cash, accounts receivable, notes receivable.
Term
Current Liabilities
Definition
Short term (less than a year) liabilities. Such as accounts payable, notes payable etc
Term
Current Ratio
Definition
Current Assets
______________
Current Liabilities
Term
Income Summary
Definition
Is a temporary account (only used for the closing process) that contains a credit for the summ of all revenues (and gains) and a debit for the sum of all expenses (and losses.)
Term
Long Term Liabilities
Definition
Liabilities that in order to pay them will take more than a year such as Long-term notes payable.
Term
Net Sales
Definition
The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed.
Term
Nominal Accounts
Definition
Temporary accounts in other words such as expenses, revenue, capital and withdrawals.
Term
Operating Cycle
Definition
The operation cycle is the time span from when cash is used to acquire goods and services until cash in received from the sale of goods and services.
Term
Permanent Accounts
Definition
Accounts that do not go through the closing process such as cash, equipment, accounts payable, etc.
Term
Post Closing Trial Balance
Definition
is a list of permenent accounts and their balances from the ledger after all closing entries have been journalized and posted.
Term
Reversing Entries
Definition
Reversing entries are optional. The are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period.
Term
2/10 n/30
Definition
2% discount if paid within 10 days, net amount needs to be paid within 30 days.
Term
Cash discount
Definition
Discount given to the buyer if credit terms were met in a timely manner.
Term
Consistency Concept
Definition
Principle that prescribes use of the same accounting methods over time so that financial statement are comparable across periods.
Term
Credit Period
Definition
The amount of time allowed before full payment is due is called the credit period.
Term
Debit memorandum
Definition
When a buyer returns or takes an allowance on merchandise, the buyer issues a debit memorandum to inform the seller of a debit made to the seller's account in the buyers records.
Term
Discount period
Definition
The amount of time a company has to pay a bill in order to receive a discout

2/10 n/30
The "10" represents the discount period of 10 days.
Term
EOM
Definition
End of Month (pay by)
Term
FOB Destination
Definition
The seller has reponsibility for paying the freight charges and is also responsible for the freight until the buyer receives it at the warehouse.
Term
FOB Shipping point
Definition
Buyer has responsibility of paying the freight charges and ownership of the freight (and responsibility) belongs to the buyer as soon as the shipment leaves the origin warehouse.
Term
Gross Margin Ratio
Definition
Net Sales - COGS
________________
Net Sales
Term
Gross Profit
Definition
Net sales minus the cost of goods sold
Term
Interim Financial Statements
Definition
Financial statements covering periods of less than one year, usually based on one-, three-, or six month periods
Term
Inventory
Definition
Goods a company owns and expects to sell in its normal operations
Term
Inventory Shrinkage
Definition
In financial accounting the term inventory shrinkage (sometimes truncated to shrink) is the loss of products between point of manufacture or purchase from supplier and point of sale.
Term
Merchandise Inventory
Definition
Goods that a company owns and expects to sell to customers.
Term
Merchandiser
Definition
Entity that earns net income by buying and selling merchandise
Term
Multi-step income statement
Definition
Income statement format that shows subtoals between sales and net income, categorizes expenses and often reports the details of net sales and expenses.
Term
Periodic inventory system
Definition
Method that records the cost of inventory purchased by does not continuously track the quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and costs of goods available
Term
Perpetual Inventory System
Definition
Method tat maintains continuous records of the cost of inventory available and the cost of goods sold
Term
Purchase discout
Definition
term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period
Term
Sales Discount
Definition
term used by a seller to describe a cash discount granted to the purchaser for paying within the discount period
Term
Selling Expense
Definition
Expenses of promoting sales, such as displaying and advertising merchandise, making sales and delivering goods to customers.
Term
Single step income statement
Definition
Income statement format that includes cost of goods sold as an expense and shows only one subtotal for total expenses.
Term
Trade Discount
Definition
Reduction from a list of catalog price that can vary for wholesalers, retailers, and consumers.
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