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25 Cards in this Set
- Front
- Back
Time Period Principle
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Assumes that an organizations activities can be divided into specific time periods such as: months, quarters, semi annual, and annual.
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Annual financial statements cover..
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a 12 month period.
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Interim financial statements cover..
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less than a year.
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Calender Year
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Jan 1- Dec 31
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Fiscal Year
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Any consecutive 12 months
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Natural Business Year End
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Year ends when sales are at their lowest.
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Accrual Basis
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Revenues recorded when earned and expenses recorded when incurred. Consistent with GAAP
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Cash Basis
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Revenues recognized when cash is received, expenses are recorded when cash is paid. Not Consistent with GAAP
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Matching
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Requires expenses be recorded in the same period as the revenues earned as a result of these expenses.
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Unadjusted Trial Balance
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List of accounts and balances prepared BEFORE adjustments are recorded.
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Adjusted Trial Balance
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List of accounts and balances prepared AFTER adjusting entries have been posted.
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Post-Closing Trial Balance
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Consists of a list of only balance sheet accounts (permanent accounts and their balances).
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Adjusting Entry
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Recorded to bring an asset or liability accounts balance to its proper amount. It also updates a related expense or revenue.
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Types of adjusting entries..
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- Prepaid (deferred) Expense
- Depreciation - Unearned (deferred) Revenue - Accrued Expense - Accrued Revenue |
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Prepaid Expenses
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Items paid for in advance of receiving their benefits. Assets, prepaid insurance, rent, supplies...
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Depreciation
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cost-salvage value/useful life
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Unearned Revenues
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Liabilities created by the receipt of cash in advance of providing goods or services.
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Accrued Expenses
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Costs that are incurred in a period but are both unrecorded and unpaid.
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Accrued Revenues
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Revenues earned in a period that are both unrecorded and not yet received in cash.
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Temporary (Nominal) Accounts
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Income statement accounts (revenue & expenses), dividends, and the income summary. All are closed and start at zero the next year.
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Permanent (Real) Accounts
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All balance sheet accounts (assets, liabilities, and oe). Not closed and balances are carried forward.
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Steps in closing
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Close: all revenue accounts to the income summary, all expense accounts to the income summary, the income summary account to the retained earnings, dividends account to retained earnings.
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Classified Balance Sheet
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Organizes assets and liabilities into important subgroups that provide information to decision makers.
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Profit Margin
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Useful measure of a company's operating results. Formula to compute is: PM= NI/Net Sales (% of profit in each
dollar of sales) |
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Current Ratio=
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Current assets/current liabilities
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