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Accounting Test #2
vocab
33
Accounting
Undergraduate 2
10/25/2015

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Term
Accrual basis accounting
Definition
Revenues are recognized when earned, even if cash was not recieved
Expenses are recognized when incurred, even if cash was not paid
Term
Revenue recognition principle
Definition
service compamies recognize when service is preformed.
Term
Matching principle
Definition
let the expenses follow the revenues
Term
Expense recognition principle
Definition
expenses matched with revenues in the period when efforts are expended to generate revenue
Term
Trial Balance
Definition
the starting place for adjusting entries: each accoung is analyzed to determine wether it is complete and up to date.
Term
Adjusting journal entries
Definition
revenues- recorded in the period in which they are earned
expenses- recognized in the period in which they are incurred
Term
defferals
Definition
prepaid expenses & unearned revenues
Term
prepaid expenses
Definition
current asset

expenses paid in cash and recorded as an asset before tehy are used or consumed
Term
accruals
Definition
accrued revenues- revenues earned but not yet recieved cash or recorded

accrued expenses- expenses incurred but not yet paid in cash or recorded
Term
depreciation
Definition
depreciation does not report the actual change in the value of the asset
Term
Accumulated depreciation
Definition
contra asset account
Term
Unearned revenue
Definition
the receipt of cash before revenue is earned, not practical to make daily entries as revenue is earned

* record revenues that have been earned in current period, adjust liability to what remains at end of period
Term
Adjusting Prepaid Expenses
Definition
Before adjustment the assets are overstated and expenses are understated.

Debit Expenses
Credit Assets
Term
Adjusting Unearned Revenue
Definition
Beofre adjustmetnt liabilities overstated, revenues understated

Debit Liabilties
Credit Revenues
Term
Adjusting Accrued revenues
Definition
before adjustment assets understated, revenues understated.

Debit Assets
Credit Revenues
Term
Adjusting Accrued expenses
Definition
before adjustment, expenses undestated and liabilities understated

Debit Expense
Credit Liabilties
Term
Adjusted trial balance
Definition
after adjusting all entries have been journalized then prepare another trial balance from ledger accounts
Term
Why adjust trial balance
Definition
prove the equality of debit balances and credit balances in the ledger after all adjustments made.
Term
Reatined Earnings
Definition
Ending RE + Net Income - Dividends = Beggining RE
Term
Perpetual System
Definition
COGS determined after every sale, records continuously show on hand,
Term
Periodic System
Definition
COGS determined at end of period
Term
FOB Shipping Point
Definition
Buyer pays for freight cost
Ownership of goods passes to buyer at shipping point
buyer records goods in transit in inventory
Term
FOB Destination
Definition
Seller pays for freight cost
Seller has owenrship until destination
Seller records freight costs as operating expense
Term
Gross Profit Rate
Definition
Gross Profit
-----------------
Net Sales
Term
Profit Margin
Definition
Net Income
-------------------
Net Sales
Term
Single Step Income Statement
Definition
Total Revenues - Total Expenses

profit not realied until total revenues exceeds total expenses
Term
Multiple Step Income Statement
Definition
Highlights components to net income: Gross Profit, Income from operations and Net Income.
Term
Gross Profit
Definition
GP = Revenue - COGS
Term
Cost of Goods Sold Formula
Definition
Begginig Inventory + Inventory Purchased - End Inventory
Term
LIFO
Definition
Last in, First Out

higher quality of earnings ratio, lower taxes
Term
FIFO
Definition
First in, First Out

higher phantom profits, higher net income, lower net cash for operation activites
Term
Inventory Turnover Ratio
Definition
COGS / average inventory (begining + end)
Term
Days in Inventory
Definition
365 days/ Inventory Turnover Ratio
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