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Financial Accounting

Financial Accounting: Ch. 3

TermDefinition
Fiscal Year An annual time period for which a company provides financial statements.
T-Account Simple account representation. Title on top- Debit on left - Credit on right.
Credit Entry on the right side of an account; increases liability and equity accounts or decreases asset accounts.
Debit Entry on the left side of an account; increases asset accounts or decreases liability and equity accounts.
Account Balance Difference between total debit and total credit amounts in an account.
Double-Entry Accounting Record-keeping system that provides checks and balances by recording two sides for every transaction.
Source Documents Record such as a cash register tape, invoice, time card or check stub that provides accounting information to be recorded in the accounting journals and ledger.
Journals Book (or electronic record) of original entry in which accounting data are entered chronologically before posting to the ledger account.
Books of Original Entry A journal in which a transaction is first recorded.
Special Journals Journals designed to improve recording efficiency for specific routine, high-volume transactions such as credit sales.
General Journals Book of original entry in which any accounting transaction could be recorded, though commonly limited to adjusting and closing entries and unusual transactions.
Posting Copying transaction data from journals to ledger accounts.
General Ledger The set of all accounts used in given accounting system, typically organized in financial statement order.
Chart of Accounts List of all ledger accounts and their corresponding account numbers.
Trial Balance Schedule listing the balances of all ledger accounts; verifies mathematical accuracy of the accounting records and provides a convenient reference of current account balances.
Closing Entries Entries that transfer the balances in the temporary accounts (Revenue, Expense, and Dividends) to the permanent account (Retained Earnings).
Return on Assets Ratio Profitability measure based on earnings a company generates relative to its asset base; calculated as net income divided by average total assets.
Debt to Assets Ratio Financial measure of a company's level of risk; calculated as total debt divided by total assets.
Return on Equity Ratio Profitability measure based on earnings a company generates relative to its stockholders' equity; calculated as net income divided by average stockholders' equity.
Financial Leverage Principle of increasing earnings through debt financing by investing money at a higher rate than the rate paid on the borrowed money.
Created by: lizhopper2
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