Glossary of Accounting Flashcards - BAD 1

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A standardized format that organizations use to accumulate the dollar effects of transactions on each financial statement item. (4, 56)
Accounting Cycle  
The process used by entities to analyze and record transactions, adjust the records at the end of the period, prepare financial statements, and prepare the records for the next cycle. (163)
Accounting Entity  
The organization for which financial data are to be collected. (7)
Accounting Period  
The time period covered by the financial statements. (10)
A system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers. (4)
Accounts Receivable (Trade Receivables, Receivables)  
Open accounts owed to the business by trade customers. (290)
Accrual Basis Accounting  
Records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments. (108)
Accrued Expenses  
Previously unrecorded expenses that need to be adjusted at the end of the accounting period to reflect the amount incurred and its related payable account. (166)
Accrued Liabilities  
Expenses that have been incurred but have not been paid at the end of the accounting period. (462)
Accrued Revenues  
Previously unrecorded revenues that need to be adjusted at the end of the accounting period to reflect the amount earned and its related receivable account. (166)
Accumulated Other Comprehensive Income  
Net unrealized gains or losses on securities, net minimum pension liability adjustments, and net foreign currency translation adjustment, which are directly credited or debited to the stockholders' equity account. (238)
Acquisition Cost  
Net cash equivalent amount paid or to be paid for the asset. (399)
Adjusting Entries  
Entries necessary at the end of the accounting period to measure all revenues and expenses of that period. (165)
Aging of Accounts Receivable Method  
Estimates uncollectible accounts based on the age of each account receivable. (295)
Allowance for Doubtful Accounts (Allowance for Bad Debts, Allowance for Uncollectible Accounts)  
Contraasset account containing the estimated uncollectible accounts receivable. (292)
Allowance Method  
Bases bad debt expense on an estimate of uncollectible accounts. (291)
Systematic and rational allocation of the acquisition cost of an intangible asset over its useful life. (419)
A series of periodic cash receipts or payments that are equal in amount each interest period. (475)
Probable future economic benefits owned by the entity as a result of past transactions. (51)
Assurance Services  
are independent professional services that improve the quality of information for decision makers. (23)
An examination of the financial reports to ensure that they represent what they claim and conform with generally accepted accounting principles. (23)
Authorized Number of Shares  
Maximum number of shares of corporation's capital stock that can be issued as specified in the charter. (553)
Average Cost Method  
uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory. (347)
Bad Debt Expense (Doubtful Accounts Expense, Uncollectible Accounts Expense, Provision for Uncollectible Accounts)  
Expense associated with estimated uncollectible accounts receivable. (292)
Balance Sheet (Statement of Financial Position)  
Reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time. (7)
Bank Reconciliation  
Process of verifying the accuracy of both the bank statement and the cash accounts of a business. (302)
Bank Statement  
Monthly report from a bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance. (301)
Basic Accounting Equation (Balance Sheet Equation)  
Assets = Liabilities + Stockholders' Equity. (8)
Bond Certificate  
The bond document that each bondholder receives. (513)
Bond Discount  
The difference between selling price and par when a bond is sold for less than par. (515)
Bond Premium  
The difference between selling price and par when a bond is sold for more than par. (515)
Bond Principal  
The amount (1) payable at the maturity of the bond and (2) on which the periodic cash interest payments are computed. (512)
Callable Bonds  
Bonds that may be called for early retirement at the option of the issuer. (512)
Capital Expenditures  
Expenditures that increase the productive life, operating efficiency, or capacity of the asset and are recorded as increases in asset accounts, not as expenses. (403)
Capital Lease  
meets at least one of the four criteria established by GAAP and results in the recording of an asset and liability. (472)
Capitalized Interest  
Interest expenditures included in the cost of a self-constructed asset. (401)
Cash Basis Accounting  
Records revenues when cash is received and expenses when cash is paid. (108)
Cash Equivalents  
Short-term investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change. (299, 647)
Cash Flows from Financing Activities  
Cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise. (649)
Cash Flows from Investing Activities  
Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies. (649)
Cash Flows from Operating Activities (Cash Flows from Operations)  
Cash inflows and outflows directly related to earnings from normal operations. (647)
Money or any instrument that banks will accept for deposit and immediate credit to the company's account, such as a check, money order, or bank draft. (299)
Closing Entries  
Made at the end of the accounting period to transfer balances in temporary accounts to Retained Earnings and to establish a zero balance in each of the temporary accounts. (179)
Common Stock  
The basic voting stock issued by a corporation. (555)
Comparable Information  
Information that can be compared across businesses because similar accounting methods have been applied. (231)
Component Percentage  
Expresses each item on a particular financial statement as a percentage of a single base amount. (708)
Suggests that care should be taken not to overstate assets and revenues or understate liabilities and expenses. (247)
Consistent Information  
Information that can be compared over time because similar accounting methods have been applied. (231)
Consolidated Financial Statements  
The financial statements of two or more companies that have been combined into a single set of financial statements as if the companies were one. (614)
Contingent Liability  
Potential liability that has arisen as the result of a past event; not an effective liability until some future event occurs. (467)
Continuity (Going-Concern) Assumption  
States that businesses are assumed to continue to operate into the foreseeable future. (50)
An account that is an offset to, or reduction of, the primary account. (164)
Contributed Capital  
Results from owners providing cash (and sometimes other assets) to business. (53)
Convertible Bonds  
Bonds that may be converted to other securities of the issuer (usually common stock). (512)
Exclusive right to publish, use, and sell a literary, musical, or artistic work. (421)
Cost of Goods Sold Equation  
BI + P - EI = CGS. (343)
Cost Principle  
See historical cost principle.
Cost-Benefit Constraint  
Suggests that the benefits of accounting for and reporting information should outweigh the costs. (231)
Coupon Rate  
The stated rate of interest on bonds. (514)
Credit Card Discount  
Fee charged by the credit card company for its services. (286)
The right side of an account. (63)
Cumulative Dividend Preference  
Preferred stock feature that requires specified current dividends not paid in full to accumulate for every year in which they are not paid. These cumulative preferred dividends must be paid before any common dividends can be paid. (565)
Cumulative Effects of Changes in Accounting Methods  
Amounts reflected on the income statement for adjustments made to balance sheet accounts when applying different accounting principles. (255)
Current Assets  
Assets that will be used or turned into cash within one year. Inventory is always considered a current asset regardless of the time needed to produce and sell it. (51)
Current Dividend Preference  
The feature of preferred stock that grants priority on preferred dividends over common dividends. (565)
Current Liabilities  
Short-term obligations that will be paid in cash (or other current assets) within the current operating cycle or one year, whichever is longer. (51, 459)
An unsecured bond; no assets are specifically pledged to guarantee repayment. (512)
The left side of an account. (63)
Declaration Date  
The date on which the board of directors officially approves a dividend. (560)
Declining-Balance Depreciation  
The method that allocates the cost of an asset over its useful life based on a multiple of (often two times) the straight-line rate. (409)
Deferred Expenses  
Previously acquired assets that need to be adjusted at the end of the accounting period to reflect the amount of expense incurred in using the asset to generate revenue. (165)
Deferred Revenues  
Previously recorded liabilities that need to be adjusted at the end of the period to reflect the amount of revenue earned. (165, 466)
Deferred Tax Items  
Timing differences caused by reporting revenues and expenses according to GAAP on a company's income statement and according to the Internal Revenue Code on the tax return. (481)
Systematic and rational allocation of the cost of a natural resource over the period of exploitation. (418)
Process of allocating the cost of buildings and equipment over their productive lives using a systematic and rational allocation of the cost of property, plant, and equipment (but not land) over their useful lives. (405)
Direct Labor  
The earnings of employees who work directly on the products being manufactured. (342)
Direct Method  
The method of presenting the operating activities section of the statement of cash flows reporting components of cash flows from operating activities as gross receipts and gross payments. (647)
Discontinued Operations  
Financial results from the disposal of a major component of the business and are reported net of income tax effects. (253)
Dividends in Arrears  
Dividends on cumulative preferred stock that have not been declared in prior years. (565)
Earnings Forecasts  
Predictions of earnings for future accounting periods. (227)
Effective-Interest Method  
Amortizes a bond discount or premium on the basis of the effective-interest rate; it is the theoretically preferred method. (523)
Effective-Interest Rate  
Another name for the market rate of interest on a bond. (515)
Efficient Markets  
Securities markets in which prices fully reflect available information. (723)
Equity Method  
Used when an investor can exert significant influence over an investee. It permits recording the investor's share of investee's income. (608)
Estimated Useful Life  
Expected service life of an asset to the present owner. (406)
Decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period. (106)
Extraordinary Items  
Gains and losses that are both unusual in nature and infrequent in occurrence; they are reported net of tax on the income statement. (254)
Extraordinary Repairs  
Infrequent expenditures that increase an asset's economic usefulness in the future. (403)
Face Amount  
Another name for principal or the principal amount of a bond. (512)
Factory Overhead  
Manufacturing costs that are not raw material or direct labor costs. (342)
Financial Accounting Standards Board (FASB)  
The private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles. (20)
Finished Goods Inventory  
Manufactured goods that are completed and ready for sale. (341)
First-In, First-Out (FIFO) Method  
Assumes that the first goods purchased (the first in) are the first goods sold. (346)
Form 10-K  
The annual report that publicly traded companies must file with the SEC. (235)
Form 10-Q  
The quarterly report that publicly traded companies must file with the SEC. (235)
Form 8-K  
The report used by publicly traded companies to disclose any material event not previously reported that is important to investors. (235)
A contractual right to sell certain products or services, use certain trademarks, or perform activities in a geographical region. (422)
Free Cash Flow  
Cash Flows from Operating Activities — Dividends — Capital Expenditures. (667)
Future Value  
The sum to which an amount will increase as the result of compound interest. (473)
Increases in assets or decreases in liabilities from peripheral transactions. (107)
Generally Accepted Accounting Principles (GAAP)  
The measurement rules used to develop the information in financial statements. (20)
Goods Available for Sale  
The sum of beginning inventory and purchases (or transfers to finished goods) for the period. (343)
Goodwill (Cost in Excess of Net Assets Acquired)  
For accounting purposes, the excess of the purchase price of a business over the market value of the business's assets and liabilities. (420, 616)
Gross Profit (Gross Margin)  
Net sales less cost of goods sold. (240)
Held-to-Maturity Investments  
A long-term investments in bonds that management has the ability and intent to hold until maturity. (598)
Historical Cost Principle  
Requires assets to be recorded at the historical cash-equivalent cost, which on the date of the transaction is cash paid plus the current dollar value of all noncash considerations also given in the exchange. (55)
Income before Income Taxes (Pretax Earnings)  
Revenues minus all expenses except income tax expense. (241)
Income from Operations (Operating Income)  
Equals net sales less cost of goods sold and other operating expenses. (241)
Income Statement (Statement of Income, Statement of Earnings, Statement of Operations)  
Reports the revenues less the expenses of the accounting period. (10)
A bond contract that specifies the legal provisions of a bond issue. (512)
Indirect Method  
The method of presenting the operating activities section of the statement of cash flows that adjusts net income to compute cash flows from operating activities. (647)
Institutional Investors  
Managers of pension, mutual, endowment, and other funds that invest on the behalf of others. (229)
Intangible Assets  
Assets that have special rights but not physical substance. (397)
Internal Controls  
Processes by which a company provides reasonable assurance regarding the reliability of the company's financial reporting, the effectiveness and efficiency of its operations, and its compliance with applicable laws and regulations. (300)
Tangible property held for sale in the normal course of business or used in producing goods or services for sale. (340)
Investments in Associated (or Affiliated) Companies  
are investments in stock held for the purpose of influencing the operating and financing strategies for the long term. (608)
Issued Shares  
Total number of shares of stock that have been sold; shares outstanding plus treasury shares held. (553)
Journal Entry  
An accounting method for expressing the effects of a transaction on accounts in a debitsequal- credits format. (63)
Last-In, First-Out (LIFO) Method  
Assumes that the most recently purchased units (the last in) are sold first. (346)
Legal Capital  
The permanent amount of capital defined by state law that must remain invested in the business; serves as a cushion for creditors. (555)
Lenders (Creditors)  
Suppliers and financial institutions that lend money to companies. (230)
Probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services. (51, 459)
Licenses and Operating Rights  
obtained through agreements with governmental units or agencies, permit owners to use public property in performing its services. (422)
LIFO Liquidation  
A sale of a lowercost inventory item from beginning LIFO inventory. (364)
LIFO Reserve  
A contra-asset for the excess of FIFO over LIFO inventory. (352)
is the ability to pay current obligations. (459)
Long-Lived Assets  
Tangible and intangible resources owned by a business and used in its operations over several years. (397)
Long-Term Liabilities  
All of the entity's obligations that are not classified as current liabilities. (470)
Decreases in assets or increases in liabilities from peripheral transactions. (107)
Lower of Cost or Market (LCM)  
Valuation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost. (354)
Market Interest Rate  
Current rate of interest on a debt when incurred; also called yield or effective-interest rate. (515)
Market Tests  
Ratios that tend to measure the market worth of a share of stock. (719)
Market Value Method  
Reports securities are at their current market value. (600)
Matching Principle  
Requires that expenses be recorded when incurred in earning revenue. (112)
Material Amounts  
Amounts that are large enough to influence a user's decision. (247)
Merchandise Inventory  
Goods held for resale in the ordinary course of business. (340)
occurs when one company purchases all of the net assets of another and the target company goes out of existence. (615)
Natural Resources  
Assets occurring in nature, such as mineral deposits, timber tracts, oil, and gas. (417)
Net Book Value (Book Value, Carrying Value)  
of an asset is the acquisition cost of the asset less accumulated depreciation, depletion, or amortization. (164, 405)
Net Realizable Value  
The expected sales price less selling costs (e.g., repair and disposal costs). (355)
Noncash Investing and Financing Activities  
Transactions that do not have direct cash flow effects; reported as a supplement to the statement of cash flows in narrative or schedule form. (670)
No-Par Value Stock  
Capital stock that has no par value specified in the corporate charter. (555)
Notes (Footnotes)  
Provide supplemental information about the financial condition of a company, without which the financial statements cannot be fully understood. (16)
Notes Receivable  
Written promises that require another party to pay the business under specified conditions (amount, time, interest). (291)
Operating Cycle (Cash-to-Cash Cycle)  
The time it takes for a company to pay cash to suppliers, sell those goods and services to customers, and collect cash from customers. (103)
Operating Lease  
does not meet any of the four criteria established by GAAP and does not cause the recording of an asset and liability. (472)
Ordinary Repairs and Maintenance  
Expenditures for the normal operating upkeep of long-lived assets. (403)
Outstanding Shares  
Total number of shares of stock that are owned by stockholders on any particular date. (553)
Paid-In Capital (Additional Paid-in Capital, Contributed Capital in Excess of Par)  
is the amount of contributed capital less the par value of the stock. (238)
Par Value  
(1) A legal amount per share established by the board of directors; it establishes the minimum amount a stockholder must contribute and has no relationship to the market price of the stock. (2) Also, another name for bond principal or the maturity amount of a bond. (238, 512, 555)
Parent Company  
The entity that gains a controlling influence over another company (the subsidiary). (614)
Granted by the federal government for an invention; gives the owner the exclusive right to use, manufacture, and sell the subject of the patent. (421)
Payment Date  
The date on which a cash dividend is paid to the stockholders of record. (560)
Percentage of Credit Sales Method  
Bases bad debt expense on the historical percentage of credit sales that result in bad debts. (294)
Periodic Inventory System  
Ending inventory and cost of goods sold determined at the end of the accounting period based on a physical inventory count. (361)
Permanent (Real) Accounts  
The balance sheet accounts that carry their ending balances into the next accounting period. (179)
Perpetual Inventory System  
A detailed inventory record maintained recording each purchase and sale during the accounting period. (361)
Post-Closing Trial Balance  
Should be prepared as the last step in the accounting cycle to check that debits equal credits and all temporary accounts have been closed. (180)
Preferred Stock  
Stock that has specified rights over common stock. (564)
Present Value  
The current value of an amount to be received in the future; a future amount discounted for compound interest. (473)
Press Release  
A written public news announcement normally distributed to major news services. (232)
Primary Objective of External Financial Reporting  
Provides useful economic information about a business to help external parties make sound financial decisions. (49)
Private Investors  
Individuals who purchase shares in companies. (230)
Purchase Discount  
Cash discount received for prompt payment of an account. (367)
Purchase Method  
records assets and liabilities acquired in a merger or acquisition at their fair market value. (616)
Purchase Returns and Allowances  
A reduction in the cost of purchases associated with unsatisfactory goods. (367)
Ratio (Percentage) Analysis  
An analytical tool that measures the proportional relationship between two financial statement amounts. (707)
Raw Materials Inventory  
Items acquired for the purpose of processing into finished goods. (341)
Record Date  
The date on which the corporation prepares the list of current stockholders as shown on its records; dividends can be paid only to the stockholders who own stock on that date. (560)
Relevant Information  
Information that can influence a decision; it is timely and has predictive and/or feedback value. (231)
Reliable Information  
Information that is accurate, unbiased, and verifiable. (231)
Replacement Cost  
The current purchase price for identical goods. (354)
Report of Independent Accountants (Audit Report)  
Describes the auditors' opinion of the fairness of the financial statement presentations and the evidence gathered to support that opinion. (22)
Residual (or Salvage) Value  
Estimated amount to be recovered, less disposal costs, at the end of the company's estimated useful life of an asset. (406)
Retained Earnings  
Cumulative earnings of a company that are not distributed to the owners and are reinvested in the business. (53)
Revenue Expenditures  
Expenditures that maintain the productive capacity of an asset during the current accounting period only and are recorded as expenses. (403)
Revenue Principle  
Revenues are recognized when goods or services are delivered, there is evidence of an arrangement for customer payment, the price is fixed or determinable and collection is reasonably assured. (109)
Increases in assets or settlements of liabilities from ongoing operations. (104)
Sales (or Cash) Discount  
Cash discount offered to encourage prompt payment of an account receivable. (286)
Sales Returns and Allowances  
Reduction of sales revenues for return of or allowances for unsatisfactory goods. (288)
Securities and Exchange Commission (SEC)  
The U.S. government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements. (20)
Securities Available for Sale  
All passive investments other than trading securities (classified as either shortterm or long-term). (601)
Separate-Entity Assumption  
States that business transactions are separate from the transactions of the owners. (50)
Specific Identification Method  
Identifies the cost of the specific item that was sold. (345)
Stated Rate  
The rate of cash interest per period specified in the bond contract. (512)
Statement of Cash Flows  
Reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing. (14)
Statement of Retained Earnings  
Reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period. (13)
Stock Dividend  
Distribution of additional shares of a corporation's own stock. (562)
Stock Split  
An increase in the total number of authorized shares by a specified ratio; does not decrease retained earnings. (563)
Stockholders' Equity (Owners' Equity or Shareholders' Equity)  
The financing provided by the owners and the operations of the business. (52)
Straight-Line Amortization  
Simplified method of amortizing a bond discount or premium that allocates an equal dollar amount to each interest period. (520)
Straight-Line Depreciation  
Method that allocates the cost of an asset in equal periodic amounts over its useful life. (407)
Subsidiary Company  
The entity that is acquired by the parent company. (614)
A tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities. (65)
Tangible Assets  
(or fixed assets)Assets that have physical substance. (397)
includes costs for computer software and Web development. (421)
Temporary (Nominal) Accounts  
Income statement (and sometimes dividends declared) accounts that are closed to Retained Earnings at the end of the accounting period. (179)
Temporary Differences  
Timing differences that cause deferred income taxes and will reverse, or turn around, in the future. (481)
Tests of Liquidity  
Ratios that measure a company's ability to meet its currently maturing obligations. (714)
Tests of Profitability  
compare income with one or more primary activities. (709)
Tests of Solvency  
Ratios that measure a company's ability to meet its longterm obligations. (718)
Time Period Assumption  
The long life of a company can be reported in shorter time periods. (104)
Time Value of Money  
Interest that is associated with the use of money over time. (464)
An exclusive legal right to use a special name, image, or slogan. (421)
Trading Securities  
All investments in stocks or bonds that are held primarily for the purpose of active trading (buying and selling) in the near future (classified as short-term). (601)
Transaction Analysis  
The process of studying a transaction to determine its economic effect on the business in terms of the accounting equation. (58)
(1) An exchange between a business and one or more external parties to a business or (2) a measurable internal event such as the use of assets in operations. (56)
Treasury Stock  
A corporation's own stock that has been issued but was subsequently reacquired and is still being held by that corporation. (558)
Trial Balance  
A list of all accounts with their balances to provide a check on the equality of the debits and credits. (163)
An independent party appointed to represent the bondholders. (513)
Unit-of-Measure Assumption  
States that accounting information should be measured and reported in the national monetary unit. (50)
Units-of-Production Depreciation  
Method that allocates the cost of an asset over its useful life based on its periodic output related to its total estimated output. (408)
Unqualified (Clean) Audit Opinion  
Auditors' statement that the financial statements are fair presentations in all material respects in conformity with GAAP. (226)
Unrealized Holding Gains and Losses  
Amounts associated with price changes of securities that are currently held. (600)
Work in Process Inventory  
Goods in the process of being manufactured. (341)
Working Capital  
The dollar difference between total current assets and total current liabilities. (468)
Yield (Effective Interest Rate)  
is the current rate of interest on a debt when incurred. (515)

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