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ACCT 1 Definitions
Fundamental Accounting Definitions 1 of 2
| Question | Answer |
|---|---|
| Accelerated Depreciation Method | Method that produces larger depreciation charges in the early years of an asset's life and smaller charges in its later years |
| Account | Record within an accounting system in which increases and decreases are entered stored in a specific asset, liability, equity, revenue, or expense |
| Account Balance | Difference between total debits and total credits (including the beginning balance) for an account |
| Account Form Balance Sheet | Balance sheet that lists assets on the left side and liabilities ad equity on the right |
| Account Payable | Liability created by buying goods or services on credit; backed by the buyer's general credit standing |
| Accounting | Information and measurement system that identifies, records, and communications relevant information about a company's business activities |
| Accounting Cycle | Recurring steps performed each accounting period, starting with analyzing transactions and continuing through the post-closing trial balance (or reversing entries) |
| Accounting Equation | Equality involving a company's assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation |
| Accounting Information System | People, records, an methods that collect and process data from transactions and events, organize them in useful forms, and communicate results to decision makers |
| Accounting Period | Length of time covered by financial statements also called reporting period |
| Accounts Payable Ledger | Subsidiary ledger listing individual creditor (supplier) accounts |
| Accounts Receivable | Amounts due from customers for credit sales; backed by the customer's general credit standing |
| Accounts Receivable Ledger | Subsidiary ledger listing individual customer accounts |
| Accounts Receivable Turnover | Measure of both the quality and liquidity of accounts receivable; indicates how often receivables are received and collected during the period; computed by dividing net sales by average accounts receivable |
| Accrual Basis Accounting | Accounting system that recognizes revenues when earned and expenses when incurred; the basis for GAAP |
| Accrued Expenses | Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities |
| Accrued Revenues | Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for recording accrued revenues involve increasing assets and increasing revenues |
| Accumulated Depreciation | Cumulative sum of all depreciation expenses recorded for an asset |
| Acid-Test Ratio | Ration used to access a company's ability to settle its current debts with its most liquid assets; defined as a quick assets (cash, short-term investments, and current receivables) divided by current liabilities |
| Adjusted Trial Balance | List of accounts and balances prepared after period-end adjustments are recorded and posted |
| Adjusting Entry | Journal entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account |
| Aging of Accounts Receivable | Process of classifying accounts receivable by how long they are past due for purposes of estimating uncollectible accounts |
| Allowance for Doubtful Accounts | Contra asset account with a balance approximating uncollectible accounts receivable; also called Allowance for Uncollectible Accounts |
| Allowance Method | Procedure that (a) estimates and matches bad debts expense with its sales for the period and/or (b) reports accounts receivable at estimated realized value |
| Amortization | Process of allocating the cost of an intangible asset to expense over its estimated useful life |
| Annual Financial Statements | Financial statements covering a one-year period; often based on a calendar year, but any consecutive 12-month (or 52-week) period is acceptable |
| Annual Report | Summary of a company's financial results for the year with its current financial condition and future plans; directed to external users of financial information |
| Annuity | Series of equal payments at equal intervals |
| Assets | Resources a business owns or controls that are expected to provide current and future benefits to the business |
| Audit | Analysis and report of an organization's accounting system, its records, and its reports using various tests |
| Bad Debts | Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts |
| Balance Column Account | Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry |
| Balance Sheet | Financial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date |
| Bank Reconciliation | Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement |
| Bank Statement | Bank report on the depositor's beginning and ending cash balances, and a listing of its changes, for a period |
| Batch Processing | Accumulating source documents for a period of time and then processing them all at once such as once a day, week, or month |
| Betterments | Expenditures to make a plant asset more efficient or productive; also called improvements |
| Book Value | Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account |
| Business | An organization of one or more individuals selling products and/or services for profit |
| Business Entity Principle | Principle that requires a business to be accounted for separately from its owner(s) and from any other entity |
| C Corporation | Corporation that does not qualify for nor elect to be treated as a proprietorship or partnership for income tax purposes and therefore is subject to income taxes; also called C corp |
| Canceled Checks | Checks that the bank has paid and deducted from the depositor's account |
| Capital Expenditures | Additional costs of plant assets that provide material benefits extending beyond the current period; also called balance sheet expenditures |
| Capitalize | Record the cost as part of a permanent account and allocate it over later periods |
| Cash | Includes currency, coins, and amounts on deposit in bank checking or savings accounts |
| Cash Basis Accounting | Accounting system that recognizes revenues when cash is received and records expenses when cash is paid |
| Cash Disbursements Journal | Special journal normally used to record all payments of cash; also called cash payments journal |
| Cash Discount | Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period |
| Cash Equivalents | Short-term, investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes |
| Cash Over and Short | Income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments |
| Cash Receipts Journal | Special journal normally used to record all receipts of cash |
| Change in an Accounting Estimate | Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods |
| Chart of Accounts | List of accounts used by a company; includes an identification number for each account |
| Check | Document signed by a depositor instructing the bank to pay a specified amount to a designated recipient |
| Check Register | Another name for a cash disbursements journal when the journal has a column for check numbers |
| Classified Balance Sheet | Balance sheet that presents assets and liabilities in relevant subgroups, including current and noncurrent classifications |
| Closing Entries | Entries recorded at the end of each accounting period to transfer end-of-period balances in revenue, gain, expense, loss, and withdrawal (dividend for a corporation) accounts to the capital account (to retained earnings for a corporation) |
| Closing Process | Necessary end-of-period steps to prepare the accounts for recording the transaction of the next period |
| Columnar Journal | Journal with more than one column |
| Common Stock | Corporation's basic ownership share; also generically called capital stock |
| Compatibility Principle | Information system principle that prescribes an accounting system to conform with a company's activities, personnel, and structure |
| Components of Accounting Systems | Key elements of an accounting information systems that include source documents, input devices, information processors, information storage, and output devices |
| Compound Journal Entry | Journal entry that affects at least three accounts |
| Computer Hardware | Physical equipment in a computerized accounting information system |
| Computer Network | linkage giving different users and different computers access to common databases and programs |
| Computer Software | Programs that direct operations of computer hardware |
| Conservatism Principle | Principle that prescribes the less optimistic estimate when two estimates are about equally likely |
| Consignee | Receiver of goods owned by another who holds them for purposes of selling them for the owner |
| Consignor | Owner of goods who ships them to another party who will sell them for the owner |
| Consistency Principle | Principle that prescribes use of the same accounting method(s) over time so that financial statements are comparable across periods |
| Contingent Liability | Obligation to make a future payment if, and only if, an uncertain future event occurs |
| Contra Account | Account linked with another account and having an opposite normal balance; reported as a subtraction from the other account's balance |
| Control Principle | Information system principle that prescribes an accounting system to aid managers in controlling and monitoring business activities |
| Controlling Account | General ledger account, the balance of which (after posting) equals the sum of the balances in its related subsidiary ledger |
| Copyright | Right giving the owner the exclusive privilege to publish and sell musical, literary, or artistic work during the creator's life plus 70 years |
| Corporation | Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders |
| Cost | All normal and reasonable expenditures necessary to get an asset in place and ready for its intended use |
| Cost of Goods Available for Sale | Consists of beginning inventory plus net purchases of a period |
| Cost of Goods Sold | Cost of inventory sold to customers during a period; also called cost of sales |
| Cost of Principle | Accounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions |
| Cost-Benefit Principle | Information system principle that prescribes the benefits from an activity in an accounting system outweigh the costs of that activity |
| Credit | Recorded on the right side; an entry that decreases asset and expense accounts, and increases liability, revenue, and most equity accounts abbreviated Cr. |
| Credit Memorandum | Notification that the sender has credited the recipient's account in the sender's records |
| Credit Period | Time period that can pass before a customer's payment is due |
| Credit Terms | Description of the amounts and timing of payments that a buyer (debtor) agrees to make in the future |
| Creditors | Individuals or organizations entitled to receive payments |
| Current Assets | Cash and other assets expected to be sold, collected, or used within one year of the company's operating cycle, whichever is longer |
| Current Liabilities | Obligations due to be paid or settled within one year or the company's operating cycle, whichever is longer |
| Current Portion of Long-Term Debt | Portion of long-term debt due within one year or the operating cycle, whichever is longer; reported under current liabilities |
| Current Ratio | Ratio used to evaluate a company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities |
| Date of Declaration | Date the directors vote to pay a divided |
| Date of Payment | Date the corporation makes the dividend payment |
| Days' Sales in Inventory | Estimate of number of days needed to convert inventory into receivables or cash; equals ending inventory divided by cost of goods sold and then multiplied by 365; also called days' stock on hand |
| Days' Sales Uncollected | Measure of the liquidity of receivables computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365; also called days' sales in receivables |
| Debit | Recorded on the left side; an entry that increases asset and expense accounts, and decreases liability ,revenue, and most equity accounts; abbreviated Dr. |
| Debit Memorandum | Notification that the sender has debited the recipient's account in the sender's records |
| Debit Ratio | Ratio of total liabilities to total assets; used to reflect risk associated with a company's debts |
| Debtors | Individuals or organizations that owe money |
| Declining-Balance Method | Method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value |
| Deferred Income Tax Liability | Corporation income taxes that are deferred until future years because of temporary difference between GAAP and tax rules |
| Depletion | Process of allocating the cost of natural resources to periods when they are consumed and sold |
| Deposit in Transit | Deposits recorded by the company but not yet recorded by its bank |
| Deposit Ticket | Lists items such as currency, coins, and checks deposited an their corresponding dollar amounts |
| Depreciable cost | Cost of a plant asset less its salvage value |
| Depreciation | Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset |
| Direct Write-Off Method | Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts |
| Discount Lost | Expenses resulting from not taking advantage of cash discounts on purchases |
| Discount on Note Payable | Difference between face value of note payable and the (lesser) amount borrowed; reflects the added interest to be paid on the note over its life |
| Discount Period | Time period in which a cash discount is available and the buyer can make a reduced payment |
| Discount Rate | Expected rate of return on investments; also called cost of capital, hurdle rate, or required rate of return |
| Double Taxation | Corporate income is taxed and then its later distribution through dividends is normally taxed again for shareholders |
| Double-Declining-Balance (DDB) Depreciation | Depreciation equals beginning book value multiplied by 2 times the straight-line rate |
| Double-Entry Accounting | Accounting system in which each transaction affects at least two accounts and has at least one debit and credit |
| Electronic Funds Transfer (EFT) | Use of electronic communication to transfer cash from one party to another |
| Employee Benefits | Additional compensation paid to or on behalf of employees, such as premiums for medical, dental, life, and disability insurance, and contributions to pension plans |
| Employee Earnings Report | Record of all employee's net pay, gross pay, deductions, and year-to-date payroll information |
| Enterprise Resource Planning (ERP) Software | Programs that manage a company's vital operations, which range from order taking to production to accounting |
| Entity | Organization that, for accounting purposes, is separate from other organizations and individuals |
| EOM | Abbreviation for end of month; used to describe credit terms for credit transactions |
| Equity | Owner's claim on the assets of a business; equals the residual interest in an entity's asset after deducting liabilities; also called net assets |
| Estimated Liability | Obligation of uncertain amount that can be reasonably estimated |
| Ethics | Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest |
| Events | Happenings that both affect an organization's financial position and can be reliably measured |
| Expanded Accounting Equation | Assets=Liabilities + Equity; Equity equals [Owner Capital - Owner Withdrawals + Revenues - Expenses] for a non-corporation; Equity equals [Contributed Capital + Retained Earnings + Revenues - Expenses] for a corporation where dividends are subtracted from |
| Expenses | Outflows or using up of assets as part of a business to generate sales |
| External Transactions | Exchanges of economic value between one entity and another entity |
| External Users | Persons using accounting information who are not directly involved in running the organization |
| Extraordinary Repairs | Major repairs that extend the useful life of a plant asset beyond prior expectations; treated as a capital expenditure |
| Federal Depository Bank | Bank authorized to accept deposits of amounts payable to the federal government |
| Federal Insurance Contributions Act (FICA) Taxes | Taxes assessed on both employers and employees; for Social Security and Medicare programs |
| Federal Unemployment Taxes (FUTA) | Payroll taxes on employers assessed by the federal government to support its unemployment insurance programs |
| Financial Accounting | Area of accounting mainly aimed at serving external users |
| Financial Accounting Standards Board (FASB) | Independent group of fulltime members responsible for setting accounting rules |
| Financial Statements | Includes the balance sheet, income statement , statement of owner's (or stockholders') equity, and statement of cash flows |
| First-in, First-out (FIFO) | Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sold |
| Fiscal Year | Consecutive 12-month (or 52-week) period closed as the organization's annual accounting period |
| Flexibility Principle | Information system principle that prescribed an accounting system be able to adapt to changes in the company, its operations, and needs of decision makers |
| Form 10-K (or 10-KSB) | Annual report form filed with SEC by businesses (small businesses) with publicly-traded securities |
| Form 940 | IRS form used to report an employer's federal unemployment taxes (FUTA) on an annual filing basis |
| Form 941 | IRS form used to report FICA taxes owed and remitted |
| Form W-2 | Annual report by an employer to each employee showing employee's wages subject to FICA and federal income taxes along with amounts withheld |
| Form W-4 | Withholding allowance certificate, filed with the employer, identifying the number of withholding allowances claimed |
| Franchises | privileges granted by a company or government to sell a product or service under specified conditions |
| Full-disclosure Principle | Principle that prescribed financial statements (including notes) to report all relevant information about an entity's operations and financial condition |
| General and Administrative Expenses | Expenses that support the operating of a business |
| General Journal | All-purpose journal for recording the debits and credits of transactions and events |
| General Partner | Partner who assumes unlimited liability for the debits and credits of transactions and events |
| General Partnership | Partnership in which all partners have mutual agency and unlimited liability for partnership debts |
| Generally Accepted Accounting Principles (GAAP) | Rules that specify acceptable accounting practices |
| Generally Accepted Auditing Standards (GAAS) | Rules that specify acceptable auditing practices |
| Going-Concern Principle | Principle that prescribes financial statements to reflect the assumption that the business will continue operating |
| Goodwill | Amount by which a company's (or a segment's) value exceeds the value of its individual assets less its liabilities |
| Gross Margin Ratio | Gross margin (net sales minus cost of goods sold) divided by net sales; also called gross profit ratio |
| Gross Method | Method of recording purchases at the full price without deducting any cash discounts |
| Gross Pay | Total compensation earned by an employee |
| Gross Profit | Net sales minus cost of goods sold; also called gross margin |
| Gross Profit Method | Procedure to estimate inventory when the past gross profit ratio is used to estimate cost of goods sold, which is then subtracted from the cost of goods available for sale |
| Impairment | Diminishment of an asset value |
| Imprest System | Method to account for petty cash maintains a constant balance in the fund, which equals cash plus petty cash receipts |
| Inadequacy | Condition in which the capacity of plant assets is too small to meet the company's production demands |
| Income Statement | Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also indicates any gains or losses |
| Income Summary | Temporary account used only in the closing process to which the balances of revenue and expense accounts (including any gains or losses) are transferred; its balance is transferred to the capital account (or retained earnings for a corporation) |
| Indefinite Useful Life | Asset life that is not limited by legal, regulatory, contractual, competitive, economic or other factors |
| Information Processor | Component of an accounting system that interprets, transform, and summarizes information for use in analysis and reporting |
| Information Storage | Component of an accounting system that keeps data in a form accessible to information processors |
| Input Device | Means of capturing information from source documents that enables its transfer to information processors |
| Intangible Assets | Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits |
| Interest | Charge for sing money (or other assets) loaned for one entity to another |
| Interim Financial Statements | Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods |
| Internal Controls or Internal Control System | All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies |
| Internal Transactions | Activities within an organization that can affect the accounting equation |
| Internal Users | Persons using accounting information who are directly involved in managing the organization |
| International Accounting Standards Board (IASB) | Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS) |
| Inventory | Goods a company owns and expects to sell in its normal operations |
| Inventory Turnover | Number of times a company's average inventory is sold during a period; computed by dividing cost of goods sold by average inventory; also called merchandise turnover |
| Invoice | Itemized record of gods prepared by the vendor that lists the customer's name, items sold, sales price, and terms of sale |
| Invoice Approval | Document containing a checklist of steps necessary for approving the recording and payment of an invoice; also called check authorization |
| Journal | Record in which transactions are entered before they are posted to ledger accounts; also called book of original entry |
| Journalizing | Process of recording transactions in a journal |
| Known Liabilities | Obligations of a company with little uncertainty; set by agreements, contracts, or laws also called definitely determinable liabilities |
| Land Improvements | Assets that increase the benefits of land, have a limited useful life, and are depreciated |
| Last-In; First-Out (LIFO) | Method to assign cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold |
| Lease | Contract specifying the rental of property |
| Leasehold | Rights the lessor grants to the lesee under the terms of a lease |
| Leasehold Improvements | Alterations or improvements to leased property such as partitions and storefronts |
| Ledger | Record containing all accounts (with amounts) for a business; also called general ledger |
| Lessee | Party to a lease who secures the right to possess and use the property from another party (the lessor) |
| Lessor | Party to a lease who grants another party (the lessee) the right to possess and use its property |
| Liabilities | Creditor's claims on an organization's assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events |
| Limited Liability | Owner can lose no more than the amount invested |
| Limited Liability Company | Organization form that combines select features of a corporation and a limited partnership; provides limited liability to its members (owners), is free of business tax, and allows members to actively participate in management |
| Limited Liability Partnership | Partnership in which a partner is not personally liable for malpractice or negligence unless that partner is responsible for providing the service that resulted in the claim |
| Limited Partners | Partners who have no personal liability for partnership debts beyond the amounts they invested in the partnership |
| Limited Partnership | Partnership that has two classes of partners, limited partners and general partners |
| Liquid Assets | Resources suck as cash that are easily converted into other assets or used to pay for goods, services, or liabilities |
| Liquidity | Availability of resources to meet short-term cash requirements |
| List Price | Catalog (full) price of an item before any trade discount is deducted |
| Long-term Investments | Long-term assets not used in operating activities such as notes receivable and investments in stocks and bonds |
| Long-term Liabilities | Obligations not due to be paid within one year or the operating cycle, whichever is longer |
| Lower the Cost or Market (LCM) | Required method to report inventory at market replacement cost when that market cost is lower than recorded cost |
| Maker of the Note | Entity who signs a note and promises to pay at it maturity |
| Managerial Accounting | Area of accounting mainly aimed at serving the decision-making needs of internal users; also called management accounting |
| Manufacturer | Company that uses labor and operating assets to convert raw materials to finished goods |
| matching Principle | Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses |
| Materiality | Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP |
| Maturity Date of a Note | Date when a note's principle and interest are due |
| Merchandise Inventory | Goods that a company owns and expects to sell to customers; also called merchandise or inventory |
| Merchandiser | Entity that earns net income by buying and selling merchandise |
| Merit Rating | Rating signed to an employer by a state based on the employer's record of employment |
| Modified Accelerated Cost Recovery System (MACRS) | Depreciation system required by federal income tax law |
| Monetary Unit Principle | Principle that assumes transactions and events can be expressed in money units |
| Multiple-Step Income Statement | Income statement format that shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses |
| Mutual Agency | Legal relationship among partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the scope of the partnership's business |
| Natural Business Year | Twelve-month period that ends when a company's sales activities are at their lowest point |
| Natural Resources | Assets physically consumed when used; examples are timber, mineral deposits, and oil and gas fields; also called wasting assets |
| Net Income | Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings |
| Net Loss | Excess of expenses over revenues for a period |
| Net Method | Method of recording purchases at the full invoice price less any cash discounts |
| Net Pay | Gross pay less all deductions; also called take-home pay |
| Net Realizable Value | Expected selling price (value) of a item minus the cost of making the sale |
| Noninterest-Bearing Note | Note with no stated (contract) rate of interest; interest is implicitly included in the note's face value |
| Non-Sufficient Funds (NSF) Check | Maker's bank account has insufficient money to pay the check; also called hot check |
| Note Payable | Liability expressed by a written promise to pay a definite sum of money on demand or on a specific future date(s) |
| Note Receivable | Asset consisting of a written promise to receive a definite sum of money on demand or on a specific future date(s) |
| Objectivity Principle | Principle that prescribes independent, unbiased evidence to support financial statement information |
| Obsolescence | Condition in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage |
| Online Processing | Approach to inputting data from source documents as soon as the information is available |
| Operating Cycle | Normal time between paying cash for merchandise or employee services and receiving cash from customers |
| Ordinary Repairs | Repairs to keep a plant asset in normal. Good operating condition; treated as a revenue expenditure and immediately expensed |
| Output Devices | Means by which information is taken out of the accounting system and made available for use |
| Outstanding Checks | Checks written and recorded by the depositor but not yet paid by the bank at the bank statement date |
| Owner, Capital | Account showing the owner's claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company's inception; also referred to as equity |
| Owners Investment | Assets put into the business by the owner |
| Partner Return on Equity | Partner net income divided by average partner equity for the period |
| Partnership | Unincorporated association of two or more persons to pursue a business for profit as co-owners |
| Partnership Contract | Agreement among partners that sets terms under which the affairs of the partnership are conducted; also called articles of partnership |
| Partnership Liquidation | Dissolution of a partnership by (1) selling noncash assets and allocating any gain or loss according to partners' income-and-loss ratio, (2) paying liabilities, and (3) distributing and remaining cash according to partners' capital balances |
| Patent | Exclusive right granted to its owner to produce and sell an item or to use a process for 17 years |
| Payee of the Note | Entity to whom a note is made payable |
| Payroll Bank Account | Bank account used solely for paying employees; each pay period an amount equal to the total employees' net pay is deposited in it and the payroll checks are drawn on it |
| Payroll Deductions | Amounts withheld from an employee's gross pay; also called withholdings |
| Payroll Register | Record for a pay period that shows the pay period dates, regular and overtime hors worked, gross pay, net pay, and deductions |
| Periodic Inventory System | Method that records the cost of inventory purchased but does not continuously track quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and cost of goods available |
| Permanent Accounts | Accounts that reflect activities related to one or more future periods; balance sheet accounts whose balances are not closed; also called real accounts |
| Perpetual Inventory System | Method that maintains continuous records of the cost of inventory available and the cost of goods sold |
| Petty Cash | Small amount of cash in a fund to pay minor expenses; accounted for using an imprest system |
| Plant Assets | Tangible long-lived assets used to produce r sell products and services; also called property, plant and equipment (PP&E) or fixed assets |
| Post-Closing Trial Balance | List of permanent accounts and their balances from the ledger after all closing entries are journalized and posted |
| Posting | Process of transferring journal entry information to the ledger; computerized system automate this process |
| Posting Reference (PR) Column | A column in journals in which individual ledger account numbers are entered when entries are posted to those ledger accounts |
| Pre Forma Financial Statements | Statements that show the effects of proposed transactions and events as if they had occurred |
| Prepaid Expenses | Item paid for in advance of receiving their benefits; classifies as assets |
| Principle of a Note | Amount that the signer of a note agrees to pay back when it matures, not including interest |
| Principles of Internal Control | Principles prescribing management to establish responsibility, maintain records, insure assets, separate recordkeeping from custody assets, divide responsibility for related transactions, apply technological controls, and perform reviews |
| Profit Margin | Ratio of a company's net income to its net sales; the percent of income in each dollar of revenue; also called Net Profit Margin |
| Promissory Note (Note) | Written promise to pay a specified amount either on demand or at a definite future date; is a note receivable for the lender but a note payable for the lendee |
| Purchase Discount | Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period |
| Purchase Order | Document used by the purchasing department to place an order with a seller (vendor) |
| Purchase Requisition | Document listing merchandise needed by a department and requesting it be purchased |
| Purchases Journal | Journal normally used to record all purchases on credit |
| Realizable Value | Expected proceeds from converting an asset into cash |
| Receiving Report | Form used to report that ordered goods are received and to describe their quantity and condition |
| Recordkeeping | Part of accounting that involves recording transactions and events, either manually or electronically; also called bookkeeping |
| Relevance Principle | Information system principle prescribing that its reports be useful, understandable, timely, and pertinent for decision making |
| Report Form Balance Sheet | Balance sheet that lists accounts vertically in the order of assets, liabilities, and equity |
| Retail Inventory Method | Method to estimate ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail |
| Retailer | Intermediary that buys products from manufacturers or wholesalers and sells them to consumers |
| Return | Monies received from an investment often in percent form |
| Revenue Expenditures | Expenditures reported on the current income statement as an expense because they do not provide benefits in future periods |
| Revenue Recognition Principle | The principle prescribing that revenue is recognized when earned |
| Revenues | Gross increase in equity from a company's business activities that earn income; also called sales |
| Reversing Entries | Optional entries recorded at the beginning of a period that prepare the accounts for the usual journal entries as if adjusting entries had not occurred in the prior period |
| Risk | Uncertainty about an expected return |
| S Corporation | Corporation that meets special tax qualifications so as to be treated like a partnership for income tax purposes |
| Sales Discount | Term used by a seller to describe a cash discount granted to buyers who pay within the discount period |
| Sales Journal | Journal normally used to record sales of goods on credit |
| Salvage Value | Estimate of amount to be recovered at the end of an asset's useful life; also called residual value or scrap value |
| Schedule of Accounts Payable | List of the balances of all accounts in the accounts payable ledger and their total |
| Schedule of Accounts Receivable | List of the balances for all accounts in the accounts receivable ledger and their total |
| Securities and Exchange Commission (SEC) | Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public |
| Segment Return on Assets | Segment operating income dividend by segment average (identifiable) assets for the period |
| Selling Expenses | Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers |
| Service Company | Organization that provides services instead of tangible products |
| Shareholders | Owners of a corporation; also called stockholders |
| Shares | Equity of a corporation divided into ownership units; also called stock |
| Short-Term Note Payable | Current obligation in the form of a written promissory note |
| Shrinkage | Inventory losses that occur as a result of theft or deterioration |
| Signature Card | Includes the signatures of each person authorized to sign checks on the bank account |
| Single-Step Income Statement | Income statement format that includes cost of goods sold as an expense and shows only one subtotal for total expenses |
| Social Responsibility | Being accountable for the impact that one's actions might have on society |
| Sole Proprietorship | Business owned by one person that is not organized as a corporation; also called proprietorship |
| Source Documents | Source of information for accounting entries that can be in either paper or electronic form; also called business papers |
| Special Journal | Any journal used for recording and posting transactions of a similar type |
| Specific Identification | Method to assign cost to inventory when the purchase cost of each item in inventory is identified and used to compute cost of inventory |
| Spreadsheet | Computer program that organizes data by means of formulas and format; also called electronic work sheet |
| State Unemployment Taxes (SUTA) | State payroll taxes on employers to support its unemployment programs |
| Statement of Cash Flows | A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged and operating, investing, and financing |
| Statement of Financial Accounting Standards (SFAS) | FASB publications that establish U.S. GAAP |
| Statement of Owner's Equity | Report of changes in equity over a period; adjusted for increases (owner investment and net income) and for decreases (withdrawals and net loss) |
| Straight-Line Depreciation | Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life |
| Subsidiary Ledger | List of individual sub-accounts and amounts with a common characteristic; linked to a controlling account in the general ledger |
| Supplementary Records | Information outside the usual accounting records; also called supplemental records |
| T-Account | Tool used to show how the effects of transactions an the events on individual accounts |
| Temporary Accounts | Accounts used to record revenues, expenses, and withdrawals (dividends for a corporation); they are closed at the end of each period; also called nominal accounts |
| Time Interest Earned | Ratio of income before interest expense (and any income taxes) divided by interest expense; reflects risk of covering interest commitments when income varies |
| Time Period Principle | Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years |
| Total Asset Turnover | Measure of a company's ability to use its assets to generate sales; computed by dividing net sales by average total assets |
| Trade Discount | Reduction from a list or catalog price that can vary for wholesalers, retailers, and consumers |
| Trademark or Trade (Brand) Name | Symbol, name, phrase, or jingle identified with a company, product, or service |
| Transaction | Exchange of economic consideration affecting an entity's financial position that can be reliably measured |
| Trial Balance | List of accounts and their balances at a point in time; total debit balances equal total credit balances |
| Unadjusted Trial Balance | List of accounts and balances prepared before accounting adjustments are recorded and posted |
| Unclassified Balance Sheet | Balance sheet that broadly groups assets, liabilities, and equity accounts |
| Unearned Revenue | Liability created when customers pay in advance for products or services; earned when the products or services are later delivered |
| Unites-of-Production Depreciation | Method that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage |
| Unlimited Liability | legal relationship among general partners that makes each of them responsible for partnership debt if the other partners are unable to pay their shares |
| Useful Life | Length of time an asset will be productively used in the operations of a business; also called service life |
| Vendee | Buyer of goods or services |
| Vendor | Seller of goods or services |
| Voucher | Internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded |
| Voucher Register | Journal (referred to as a book of original entry) in which all vouchers are recorded after they have been approved |
| Voucher System | Procedures and approvals designed to control cash disbursements and acceptance of obligations |
| Wage Bracket Withholding Table | Table of the amounts of income tax withheld from employee's wages |
| Warranty | Agreement that obligates the seller to correct or replace a product or service when it fails to perform properly within a specified period |
| Weighted Average | Method to assign inventory cost to sales; the cost of available-for-sale units is divided by the number of units available to determine per unit cost prior to each sale that is then multiplied by the units sold to yield the cost of that sale |
| Wholesaler | Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers |
| Withdrawals | Payments of cash or other assets from a proprietorship or partnership to its owner or owners |
| Work Sheet | Spreadsheet used to draft an unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements |
| Working Papers | Analyses and other informal reports prepared by accountants and managers when organizing information for formal reports and financial statements |
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richswimbabe
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