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accouting 5121 exam1

Vocab for exam 1

QuestionAnswer
Contra account An account with a balance that is the opposite of the normal balance. An asset account which is expected to have a credit balance (which is contrary to the normal debit balance of an asset account).
single-step income statement The income statement format where the operating and nonoperating revenues are grouped and totaled and the operating and nonoperating expenses are grouped and totaled. Then there is one subtraction of the combined expenses from the combined revenues.
multiple-step income statement Segregates the operating revenues and operating expenses from the nonoperating revenues, nonoperating expenses, gains, and losses. The multiple-step income statement also shows the gross profit (net sales minus the cost of goods sold).
Economic Entity Assumption The accountant keeps all of the business transactions of a sole proprietorship separate from the business owner's personal transactions.
Monetary Unit Assumption An accounting guideline where the U.S. dollar is assumed to be constant (no change in purchasing power) over time. This allows an accountant to add one dollar from a transaction in 1946 to one dollar in 2020 and to show the result as two dollars.
Time Period Assumption Also known as the periodicity assumption. The accounting guideline that allows the accountant to divide up the complex, ongoing activities of a business into periods of a year, quarter, month, week, etc. The precise time period
Cost Principle The accounting guideline requiring amounts in the accounts and on the financial statements to be the actual cost rather than the current value. Accountants can show an amount less than cost due to conservatism, but don't show amounts greater than cost.
Full Disclosure Principle An accounting guideline that requires information pertinent to an investing or lending decision to be included in the notes to financial statements or in other financial reports.
Going Concern Principle This accounting principle assumes that a company will continue to exist long enough to carry out its objectives and commitments and will not liquidate in the foreseeable future.
Matching Principle The matching principle directs a company to report an expense on its income statement in the period in which the related revenues are earned. Further, it results in a liability to appear on the balance sheet for the end of the accounting period.
Revenue Recognition Principle The accounting guideline requiring that revenues be shown on the income statement in the period in which they are earned, not in the period when the cash is collected. This is part of the accrual basis of accounting
Materiality The accounting guideline that permits the violation of another accounting guideline if the amount is insignificant. Don't sweat the small stuff as long as your ducks are in order - size of magnitude
Objectivity The objectivity principle states that financial and accounting information needs to be independent and free from bias.
Reliability The reliability principle is the concept of only recording those transactions in the accounting system that you can verify with objective evidence. Examples of objective evidence are: Purchase receipts, Cancelled checks, Bank statements, ect
Verifiability The verifiability concept states that it should be possible for an organization's reported financial results to be reproduced by a third party, given the same facts and assumptions
Consistency Accountants are expected to be consistent when applying accounting principles, procedures, and practices.If the company changes this practice and begins using a different one that change must be clearly disclosed.
Comparability A quality of accounting information that facilitates the comparison of financial reporting of one company to the financial reporting of another company.
Classified balance sheet A balance sheet with classifications (groupings or categories) such as current assets, property plant and equipment, current liabilities, long term liabilities, etc.
Non-classified balance sheet An unclassified balance sheet reports your assets and liabilities, but does not separate the items into classes.
Executory contract a contract that has been agreed to but not yet performed.
Par value In the case of common stock the par value per share is usually a very small amount such as $0.10 or $0.01 and it has no connection to the market value of the share of stock. The par value is sometimes referred to as the common stock's legal capital.
Additional paid in capital is the value of share capital above its stated par value and is an accounting item under Shareholders' Equity on the balance sheet. APIC can be created whenever a company issues new shares and can be reduced when a company repurchases its shares.
Net working Capital Net working capital is the amount (as opposed to being a ratio) remaining after subtracting a company's total amount of current liabilities from its total amount of current assets.
Asset Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land ect.
Acquisition (historical) cost The original cost incurred to acquire an asset (as opposed to replacement cost, current cost, or cost adjusted by a general price index).
Going concern The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to carry out its commitments, obligations, objectives, and so on.
Recognized In accounting recognition is the act of including a transaction of a financial statement-either the income statement or the balance sheet.
Realized in accounting to realize an event is to convert the event into actual cash.
Earned and realizable Under accrual accounting an item has been "earned" and is reported as revenue when a service has been performed or the ownership to a product has been transferred from the seller to the buyer (not when cash is received).
Expense recognition The expense recognition principle states that expenses should be recognized in the same period as the revenues to which they relate.
Cash-to-cash operating cycle Also known as just the Operating cycle, its the average time it takes for a retailer's or manufacturer's inventory to turn to cash.
Accounting cycle A term that describes the steps when processing transactions (analyzing, journalizing, posting, preparing trial balances, adjusting, preparing financial statements) in a manual accounting system.
Fiscal year a 12 month accounting year that ends on a date other than December 31.
Accrual basis of accounting Under the accrual basis of accounting (or accrual method of accounting), revenues are reported on the income statement when they are earned. When the revenues are earned but cash is not received, the asset accounts receivable will be recorded.
Cash Accounting An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid.
balance sheet Statement of financial condition: The statement of financial position, often called the balance sheet, is a financial statement that reports the assets, liabilities, and equity of a company on a given date.
income statement an income statement will show how profitable a business has been during the time interval shown in the statement's heading. This period of time might be a week, a month, three months, five weeks, or a year also known as Statement of operating performance
Net realizable value net realizable value or NRV is the expected selling price in the ordinary course of business minus the costs of completion, disposal, and transportation.
(Balance sheet) Statement of financial condition The statement of financial position, often called the balance sheet, is a financial statement that reports the assets, liabilities, and equity of a company on a given date.
Statement(s) affected when an accrual is made The income statement and the balance sheet
Recognized means you made an entry on the books to record some action. Does not mean cash has changed hands
Trial Balance A trial balance is a bookkeeping or accounting report that lists the balances in each of an organization's general ledger accounts. (Often the accounts with zero balances will not be listed.)
Created by: westwood15