Term
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Definition
| represents an amount on a line of a balance sheet or income statement. A common account is Cash. Following conventional naming practices increases the understandability of fin. statements. REFERS TO BOTH BS AND IS. |
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Term
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Definition
| accounts remain open, with nonzero balances, at the end of the reporting period |
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Term
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Definition
| start a period with a zero balance, accumulate info during the reporting period, and have a zero balance at the end of the reporting period |
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Term
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Definition
| BS is for a point in time, IS is for a period of time |
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Term
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Definition
(1) Cash
(2) Marketable services
(3) Accounts Receivable - amounts due from customers from sale of goods/services on account
(4) Notes Receivable - amounts due from customers or from others to whom a firm has made loans or extended credit
(5) Interest Receivable
(6) Inventory
(7) Advances to Suppliers
(8) Prepaid Rent
(9) Prepaid insurance
(10) Investments in Securities - bonds or shares of common or preferred stock that the firm plans to hold for more than a year
(11) Land
(12) Buildings
(13) Equipment
(14) Furniture and Fixtures
(15) Accumulated Depreciation - cumulative amount of the acquisition cost of long-term assets that the firm has allocated to the costs of production or to current and prior period expenses in measuring net income
(16) Organization Costs
(17) Patents - rights granted for varying numbers of years by govt to exclude others from manufacturing, using, or selling certain processes or devices
(18) Goodwill - accounting asset that includes intangibles that the acquiring firm cannot separately identify (ex: customer loyalty) |
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Term
| Typical liabilities accounts |
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Definition
(1) Accounts payable - amounts owed for goods/services acquired under an informal credit agreement
(2) Notes payable - face amount of promissory notes given in connection with loans from a bank or with the purchase of goods/services
(3) Interest payable - interest on obligations that has accrued with the passage of time
(4) Income taxes payable
(5) Advances from customers
(6) Advances from tenants, or rent received in advance
(7) Mortgage payable - form of long-term promissory note/loan where the borrower has pledged specific pieces of property as security for payment
(8) Bonds payable
(9) Deferred income taxes - income tax amounts that are delayed beyond the current accounting period |
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Term
| Typical shareholders' equity accounts |
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Definition
(1) Common stock (at par) - amount of cash or other assets received equal to the par or stated value of a firm's principal class of voting stock
(2) Additional Paid-in capital - amount of cash/assets received in the issuance of common/preferred stock in EXCESS of par value.
(3) Preferred Stock - has some preference relative to common stock
(4) Retained earnings - assets minus liabilities. accumulates amounts that measure the net assets a firm generates from undistributed earnings of the business
(5) Accumulated other comprehensive income - account that accumulates change in net assets that are not included in net income |
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Term
current assets/liabilities
non-current assets/liabilities |
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Definition
- within a year
- more than a year |
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Term
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Definition
ASSETS = LIABILITIES + SHAREHOLDERS' EQUITY
(L + E = A --> LEA) |
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Term
| dual effects of transactions |
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Definition
any single event/transaction will have one of the following effects or some combination:
(1) increase A and increase either L or E
(2) decrease A and decrease either L or E
(3) increase one A and decrease another A
(4) increase one L or E and decrease another L or E |
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Term
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Definition
device/convention for organizing and accumulating the accounting entries of transactions that affect an individual account (such as cash, accounts receivable, bonds payable, etc).
Looks like the letter 'T' |
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Term
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Definition
(1) Increases in assets appear on the left side, decreases appear on the right side
(2) Increases in liabilities appear on the right side, decreases in liabilities appear on the left side
(3) Increases in shareholders' equity appear on the right side and decreases appear on the left sidee |
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Term
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Definition
"record entry on the left side of an account"
"an entry on the left side of an account"
INDICATES
(1) increase A
(2) decrease L or E |
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Term
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Definition
"record an entry on the right side of the account"
"an entry on the right side of an account"
INDICATES
(1) decrease A
(2) increase L or E |
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Term
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Definition
uses a standardized format to indicate the accounts and amounts affected by each transaction.
Format:
Account Debited..........Amount Debited
Account Credited.........Amount Credited
PAGE 56! |
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Term
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Definition
(1) Revenue of sales - assets received (cash) in exchange for goods/services rendered
(2) Cost of goods sold
(3) Selling, general and administrative (SG&A) - costs incurred to sell products/services as well as costs of administration
(4) Research and Development (R&D expense)
(5) Advertising Expense
(6) Interest Expense
(7) Interest income - income earned on amounts lent to others or from investments in interest-yielding securities
(8) Income tax expense - federal, state and local taxes levied on income
PURPOSE: display the line items for components of net income |
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Term
| Income Statement Equation |
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Definition
| REVENUE - EXPENSES = NET INCOME or NET LOSS (depends if revenue exceeds expenses...profit....or expenses exceeds revenues...loss) |
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Term
| CONCEPT + equation (Change in Retained Earnings) |
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Definition
IS links beginning and ending balance sheets
Retained Earnings (beginning) + Net income - Dividends = Retained Earnings (ending) |
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Term
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Definition
| Retained Earnings (end) - Retained Earnings (beginning) + dividends |
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Term
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Definition
| a transaction generating an expense DECREASES net assets (decrease asset or increase liabilities) and decrease shareholders' equity. Decreasing E, means a debit, which makes an expense a DEBIT ON THE LEFT SIDE OF THE T-account |
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Term
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Definition
| transfer the info in these journal entries to the BS and IS accounts affected |
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Term
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Definition
| recorded entries that result from the passage of time at the end of the accounting period. They adjust the accounting records for changes in BS and IS accounts that continually occur and reflect changes in the firm's resources (assets) and claims on those assets (L and E) |
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Term
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Definition
| Accumulated Depreciation, that accumulates subtractions from another account |
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Term
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Definition
| involves reducing to ZERO the balance in each income statement account by debiting the revenue accounts and crediting the expense accounts, and transferring to Retained Earnings the differences between total revenues and total expenses |
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Term
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Definition
| involves a relatively straightforward listing of the sources and uses of cash from operating accounts |
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Term
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Definition
| reconciles net income to cash flows from operations by adjusting net income for non-cash IS components (more common) |
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Term
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Definition
| Good Diagram p. 73 of Accounting Process |
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Term
| matching convention (from Chap 1 but mentioned in class today) |
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Definition
| concept of recognizing expenses in the same accounting period during which the firm recognizes related revenues; combining/simultaneously recognizing the revenues and expenses that jointly result from the same transactions or other events |
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