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| the owners' claims to resources of the company |
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| (asset) bill due to company |
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| (asset) used up in operating business |
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| (asset) turned around and resold to customers |
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| (liability) informal agreement with supplier |
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| (liability) formal loan agreement |
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| (liability) customer paid in advance |
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| (liability) required to pay IRS for taxes |
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| (SE) company earns revenue and keeps it to grow the company |
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| net income distributed from company to stockholders |
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| reports how profitable a company was during a period of time (revenues and expenses) |
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| statement of stockholders' equity |
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| reports changes in stockholders' equity during a period of time |
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| reports the financial position of a company at a point in time (assets= liabilities + stockholders' equity) |
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| reports amount of cash collected and paid out by a company during a period of time |
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| owned by two or more people |
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| legally separate from its owners |
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| generally accepted accounting principles |
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| stock bought and sold on stock exchanges |
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| stock bought and sold privately |
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| revenue recognition principle |
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| record revenue when it is earned, regardless of the timing of the cash receipts. revenue is earned when goods/ services are provided to customers. |
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| record expenses in the same period as the revenue they help generate, regardless of the timing of the cash payments. expenses are recorded when they are incurred to generate revenue. |
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| historical cost principle |
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| assets should be recorded at their historical cost- amount originally given up to acquire them. |
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| economic (separate) entity assumption |
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| business activities separate from personal activities of owners |
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| common unit of monetary measure |
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| company's economic life can be divided into short, equal time intervals |
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| assumption that entity will continue to operate indefinitely |
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| record of the increases and decreases in the dollar amount associated with a specific resource or activity |
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| chronological record of the daily transactions, debits are listed first, followed by all credits indented |
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| account that shows the effect of transactions and the balance in each account |
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| simplified version of a ledger |
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| always entered on the right side of the account. accounts with typical credit balances are liabilities, equity, and revenues. |
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| always entered on the left side of the account. accounts with typical debit balances are assets, expenses, and dividends. |
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| listing of all accounts and their balances at a specific point in time, proves that total debit balances equal total credit balances |
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| record revenues when cash is received and record expenses when cash is paid. not useful in determining profitability when delay occurs between activity and cash flow. GAAP doesn't allow for publicly traded companies. |
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| record revenues when revenue is earned and record expenses when expense is incurred. required by GAAP. follows the revenue principle and the matching principle. |
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| required at the end of each accounting period to adjust accounts to their proper amount. recorded on the last day of the accounting period. involves at least one balance sheet account and at least one income statement account. |
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| update what has already been recorded and involves either a pair of assets and expense accounts, or a pair of liability and revenue accounts. |
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| include what is not yet there and involves either a pair of assets and revenue accounts, or a pair of liability and expense accounts. |
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| deferred revenue (unearned revenue) |
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| cash is received before the revenue is earned |
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| deferred expense (prepaid expense) |
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| cash is paid before the expense is incurred |
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| accrued revenue (unrecorded receivable) |
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| cash is received after the revenue is earned |
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| accrued expense (unrecorded liability) |
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| cash is paid after the expense is incurred |
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| prepared after adjusting entries |
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| track financial results from year to year, not closed to a zero balance at the end of the accounting period |
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| track financial results for a limited period of time, closed to a zero balance at the end of the accounting period (adjustments are made, income statement is prepared, and balances in temporary accounts are closed to retained earnings. |
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| closing the books (part 1) |
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Definition
| close all revenue accounts by debiting them. close all expense accounts by crediting them. difference between revenues and expenses should be debited or credited to retained earnings. |
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| closing the books (part 2) |
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Definition
| dividends- temporary account but not an expense account. closed by crediting dividends and debiting retained earnings. |
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| post-closing trial balance |
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| information taken from the ledger accounts (T-accounts) after all closing entries are posted. assures that total debits equal total credits prior to beginning the new accounting period. only permanent (balance sheet) accounts will be shown on a post-closing trial balance. all temporary accounts have a zero balance at this time. |
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Term
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| 1) analyze transactions. 2) record the effects of transactions (journal entries). 3) summarize the effects of transactions: post journal entries (T-accounts) and prepare unadjusted trial balance. 4) communicate: record and post adjusting entries, prepare adjusted trial balance, prepare financial statements, record and post closing entries, prepare post-closing trial balance. |
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| policies and procedures that managers use to safeguard assets, ensure reliable financial reporting, promote efficient and effective operations, and promote compliance with laws and regulations. |
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| cash is the asset most susceptible to theft and fraud |
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| recording, custody, authorization |
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| deposit that has been made by the company, but does not appear on the bank statement |
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| check that has been distributed by the company, but does not appear on the bank statement because it has not cleared the bank |
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| subtractions from the cash balance on the bank statement for items such as service charges |
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| additions to the cash balance on the bank statement for items such as interest |
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| any investment that is readily convertible into cash and has an original maturity of three months or less (money market accounts, treasury bills, certificates of deposit, commercial paper) |
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