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| The sequence of accounting procedures used to record, classify, and summarize accounting information |
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| The adding together of interest or different investments over time. In accounting it can refer to accounts on a balance sheet that represent liabilities and non-cash-based assets |
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| Accrual Basis of Accounting |
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| Calls for recording revenue in the period in which it is earned and recording expenses in the period in which they are incurred. The effect of events on the business is recognized as services are rendered or consumed rather than when cash is received or paid |
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| A schedule indicating the balances in ledger accounts after end-of-period entries have been posted. The amounts shown in the adjusted trial balance are carried directly into financial statements |
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| entries made at the end of the accounting period for the purpose of recognizing revenue and expenses that are not properly measured as a result of journalizing transactions as they occur |
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| A position statement that shows where the company stands in financial terms at a specific date (statement of financial position) |
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| An accounting principle that calls for the use of the same method of inventory pricing from year to year, with full disclosure of the effects of any change in method. Intended to make financial statements comparable |
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| The widely used principle of accounting for assets at their original cost to the current owner |
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| any account where the asset or liability is not realized until a future date (accounting period) |
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| A system of recording every business transaction with equal dollar amounts of both debit and credit entries. As a result of this system, the accounting equation always remains in balance; in addition, the system makes possible the measurement of net income and also the use of error detecting devices such as a trial balance |
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| Providing information about the financial resources, obligations, and activities of an economic entity that is intended for use primarily by external decision makers/investors and creditors |
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| A category in the statement of cash flows that reflects the results of debt and equity financing transactions |
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| Any 12-month accounting period adopted by a business |
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| The summary account in the ledger to which revenue and expense accounts are closed at the end of the period. The balance (credit balance for a net income, debit balance for a net loss) is transferred to the Retained Earnings Account |
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| A catefory in the statement of cash flows that reflects the results of purchases and sales of assets, such as land, buildings, and equipment |
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| Providing information that is intended primarily for use by internal management in decision making required to run the business |
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| The relative importance of an item or amount. Items significant enough to influence decisions are said to be material. Items lacking this importance are considered immaterial. The accounting treatment accorded to immaterial items may be guided by convenience rather than by theoretical principles |
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| An increase in owners equity resulting from profitable operations. Also, the excess of revenue earned over the related expenses for a given period. |
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| Accounts that report revenues, expenses gains and losses. These accounts are temporary accounts |
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| A normal balance is a classification of a certain account. Normal balances can be either normal credit accounts, or normal debit accounts |
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| Objectivity refers to accountant’s preference for using dollar amounts that are relatively factual as opposed to merely matters of personal opinion. Objectivity measurements can be verified |
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| A category in the statement of cash flows that includes the cash effects of all revenues and expenses included in the income statement |
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| Balances that carry over through one accounting period and move into the next one. Accumulating costs cause this to happen. |
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| The generally accepted accounting principle that determines when revenue should be recorded in the accounting records. Revenue is realized when services are rendered to customers or when goods sold are delivered to customers |
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| That portion of stockholders equity resulting form profits earned and retained in the business |
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| A landmark piece of securities law, designed to improve the effectiveness of corporate financial reporting through enhanced accountability of auditors, audit committees, and management |
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| Securities and Exchange Commison |
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| A governmental organization that has the legal power to establish accounting principles and financial reporting requirements for publicly held companies in the United states |
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| An unincorporated business owned by a single individual |
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| A trial balance is a two column schedule listing the names and the debit or credit balances of all accounts in the ledger |
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| A contra-asset account shown as a deduction from the related asset account in the balance sheet. Depreciation taken throughout the useful life of an asset is accumulated in this account |
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| Amortization describes the systematic write-off to expense of the cost of an intangible asset over its useful life. Amortization of an intangible asset is essentially the same as depreciation for a tangible asset. The typical entry for amortization is a debit to an amortization expense. |
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| costs incurred to acquire a long lived asset. expenditures that will benefit several accounting periods |
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| carrying value is the original cost of an asset, less the accumulated amount of any depreciation or amortization, less the accumulated amount of any asset |
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| Units of merchandise acquired at the same unit cost. An inventory comprised of several cost layers is characteristic of all inventory valuation methods except the method of average cost |
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| the cost to a merchandising company of the goods it has sold to its customers during the period |
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| allocating the cost of a natural resource to the units removed as the resource is mined, pumped, cut, or otherwise consumed |
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| The amount of an asset’s cost that will be depreciated. It is the cost minus the expected salvage value. For example, if equipment has a cost of $30,000, then the depreciable cost but is expected to have a salvage value of $3,000 then the depreciable cost would be $27,000 |
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| The systematic allocation of the cost of an asset to expense during periods of its useful life. Depreciation is how the cost of a product decreases over time. |
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| A term meaning the seller bears the cost of shipping goods to the buyer’s location. Title to the goods remains with the seller while the goods are in transit |
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| The buyer of goods bears the cost of transportation from the seller’s location to the buyer’s location. Title to the goods passes at the point of shipment, and the goods are the property of the buyer while in transit |
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| Gross profit expressed as a percentage of net sales (gross profit rate |
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| another name for gross profit margin |
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| the write down of a long lived asset for the difference between its carrying amount less its fair value |
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| Land is a tangible plant asset. Generally, the only plant asset not subject to depreciation. Has unlimited term of existence and whose usefulness does not decline over time |
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| Mines, oil fields, standing timber, and similar assets that are physically consumed and converted into inventory |
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| Gross sales revenue less sales returns and allowances and sales discounts. The most widely used measure of dollar sales volume; (usually the first figure shown in an income statement) |
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| The repeating sequence of transactions by which a business generates its revenue and cash receipts from customers |
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| Periodic Inventory System |
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Definition
| An alternative to the perpetual inventory system. it eliminates the need for recording the cost of goods sold as sales occur. However, the amounts of inventory and the cost of goods sold are not known until a complete physical inventory is taken at year end |
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| Perpetual Inventory System |
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| A system of accounting for merchandising transactions in which the Inventory and Cost of Goods Sold accounts are kept perpetually up to date |
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| Long-lived assets that are acquired for use in business operations rather than for resale to customers |
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| Residual value, also known as salvage value, is the portion of an asset’s cost expected to be recovered through the sale or trade in of the asset at the end of its useful life |
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| Revenue expenditures are expenditures that will benefit only the current accounting period |
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| Straight Line Depreciation |
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Definition
| A method of depreciation that allocates the cost of an asset (minus any residual value) equally to each year of its useful life |
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| Additional Paid in capital |
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| An account showing the amounts invested in a corporation by stockholders in excess of par value or stated value. In Short, this account shows paid-in capital in excess of legal capital. |
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| articles of incorporation |
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Definition
| act as a charter to establish the existence of a corporation in the United States and Canada, and are filed with the Secretary of State, or other company registrar. Includes right to; vote for directors and on certain other key issues, participate in dividends declared by the board of directors, and share in the distribution of assets if the corporation is liquidated. |
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| The maximum number of shares that a corporation is allowed to issue, as specified by its articles of incorporation. Other names for this is authorized stock or authorized capital stock and is usually listed in the “capital accounts” section of the balance sheet |
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| a contra liability accounts reported along with Bonds Payable. Bond Issue Costs include the professional fees and registration fees associated with the issuance of bonds |
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| the price a bond issuer or preferred stock issuer must pay investors if it wants to buy back, or call, all or part of an issue before the maturity date |
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| A lease contract that finances the eventual purchase by the lessee of leased property. The lessor accounts for the capital lease as a sale of property; the lessee records an asset and a liability equal to the present value of the future lease payments. Also called a financing lease. |
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| change in accounting estimate |
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| change in accounting priciple |
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| an agreement to carry out future transactions. Although they are not a liability (because the transaction has not yet been performed), they may be disclosed in notes to the financial statements |
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| A bond that may be exchanged (at the bondholder’s option) for a specified number of shares of the company’s capital stock. |
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| cumulative preferred stock |
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Definition
| The dividend preference carried by most preferred stocks is cumulative. If all or any part of the regular dividend on the preferred stock is omitted in a given year, the amount omitted is said to be in arrears and must be paid in a subsequent year before any dividend can be paid on the common stock |
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Definition
| an unsecured loan certificate issued by a company, backed by general credit rather than by specified assets |
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| The net operating results (revenue and expenses) of a segment of a company that has been or is being sold, as well as the gain or loss on disposal |
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Definition
| incentives offered to buyers that reduce the amount owed to the seller by either a fixed amount or a percentage of the total bill |
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| a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves). |
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| the use of accounting techniques to produce financial reports that present an overly positive view of a company's business activities and financial position |
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| Earnings per share is net income applicable to the common stock divided by the weighted average number of common shares outstanding during the year |
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Term
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Definition
| - Liabilities known to exist, but that must be recorded in the accounting records at estimated dollar amounts |
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Term
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Definition
| the costs of goods and services used up in the process of obtaining revenue |
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| income from continuing operations |
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Definition
| The profitability of the company’s ongoing operations. This subtotal is particularly helpful in making predictions of the company’s future earnings because it is based on normal operating activity that is expected to recur on a regular basis |
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Definition
| a legal and binding contract specifying all the important features of a bond, such as its maturity date, timing of interest payments, method of interest calculation, and callable or convertible features, if applicable |
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| intra-period tax allocation |
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Definition
| the allocation of income taxes to different parts of the results appearing in the income statement of a business, so that some line items are stated net of tax. |
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Definition
| a term of law and finance for the number of shares of a corporation which have been allocated (allotted) and are subsequently held by shareholders |
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Term
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Definition
| Equal to the par value or stated value of capital stock issued. This amount represents a permanent commitment of capital by the owners of a corporation and cannot be removed without special legal action. Of course, it may be eroded by losses |
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| The use of borrowed money to finance business operations |
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| Situations involving uncertainty as to whether a loss has occurred. The uncertainty will be resolved by a future event. An example of a loss contingency is the possible loss relating to a lawsuit pending against a company. Although loss contingencies are sometimes recorded in the accounts, they are more frequently disclosed only in notes to the financial statements. |
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| Rates of interest paid on deposits and other investments, determined by the interaction of the supply of and demand for funds in the money market |
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| Bonds secured by the pledge of specific assets are called mortgage bonds |
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Term
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| refers to the interest rate before taking inflation into account. Nominal can also refer to the advertised or stated interest rate on a loan, without taking into account any fees or compounding of interest |
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| A subtotal in a multiple step income statement representing the income resulting from the company’s principal business activities |
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| A lease contract that is in essence a rental agreement. The lessee has the use of the leased property, but the lessor retains the usual risks and rewards of ownership. The periodic lease payments are accounted for as rent expense by the lessee and as rental revenue by the lessor |
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Definition
| a company's stock currently held by all its shareholders, including shareblocks held by institutional investors and restricted shares owned by the company's officers and insiders. |
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| The legal capital of a corporation. Represents the minimum amount per share invested in the corporation by its owners and cannot be withdrawn except by special legal action. |
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| Premium on bonds payable (or bond premium) occurs when bonds payable are issued for an amount greater than their face or maturity amount |
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Definition
| A correction of a material error in the earnings reported in the financial statements of a prior year. Prior period adjustments are recorded directly in the retained earnings account and are not included in the income statement of the current period |
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Definition
| - the amount of earnings attributable to higher sales or lower costs rather than artificial profits created by accounting anomalies such as inflation of inventory |
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| - a one-time cost that must be paid by a company when it reorganizes. A restructuring charge might be incurred in the process of furloughing or laying off employees, closing manufacturing plants, shifting production to a new location or writing off assets |
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| Shares of a corporation’s stock that have been issued and then reacquired, but not cancelled. |
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| a metric used to gauge the effectiveness of a company's management and, consequently, the overall health of that company. The calculation measures how fast a company can convert cash on hand into inventory and accounts payable, through sales and accounts receivable, and then back into cash. |
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