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Accounting 121
Chapters 1 & 2
| Term | Definition |
|---|---|
| accounting | the language of business; an information and management system that identifies, records, and communicates an organization's business activities; includes analysis and interpretation of information to help users and leaders make effective decisions |
| recordkeeping | part of accounting that involves recording transactions and events either manually or electronically also called bookkeeping |
| bookkeeping | part of accounting that involves recording transactions and events; either manually or electronically; also called recordkeeping |
| financial accounting | area of accounting aimed mainly at serving external users; governed by concepts and rules known as generally accepted accounting principles (GAAP) |
| managerial accounting | area of accounting aimed mainly at serving the decision-making needs of internal users; also called management accounting |
| external users | persons using accounting information who are not directly involved in running the organization |
| examples of external users | lenders (creditors); shareholders (investors); boards of directors; external (independent) auditor; non-management and nonexecutive and labor unions; regulators; voters and government officials; contributors to nonprofits; customers |
| lenders (creditors) | loan money or other resources to an organization. Bank, savings and loans, and mortgage companies; use information to assess if an organization will repay its loans |
| shareholders (investers) | the owners of a corporation; they use accounting reports to decide whether to buy, hold, or sell stock |
| board of directors | oversee organizations, use accounting information to evaluate the performance of executive management |
| external (independent) auditor | examine financial statements to verify that they are prepared according to generally accepted accounting principles; independent of a company and are hired to assess and evaluate the "fairness" of financial statements |
| nonmanagerial & nonexecutive employees & labor unions | use external information to bargain for better wages |
| regulators | have legal authority over certain activities of organizations; for example, the Internal Revenue Service (IRS) requires accounting reports for computing taxes |
| voters & government officials | use information to evaluate government performance |
| contributors to nonprofits | use financial reports to assess the stability of potential supporters |
| customers | use financial reports to assess the stability of potential suppliers |
| internal users | persons using accounting information who are directly involved in managing the organization |
| examples of internal users | purchasing managers, human resource managers, production manager, distribution managers, marketing managers, service managers, research & development managers |
| purchasing managers | need to know what, when, and how much to purchase |
| human resource managers | need information about employees' payroll benefits and performance |
| production manager | use information to monitor cost and measure quality |
| distribution managers | need reports for timely and accurate delivery of products and services |
| marketing managers | use reports to target consumers, set prices, and monitor consumer needs |
| service managers | use reports to provide better service to consumers |
| research and development managers | use information on projected cost and revenues of innovations |
| four areas of opportunities for accounting | financial, managerial, taxation, accounting-related |
| financial area | preparation, analysis, external auditing, regulatory, consulting, planning, criminal investigations |
| managerial area | general accounting, cost accounting, budgeting, internal auditing, consulting, controller, treasurer, strategy |
| taxation | preparation, planning, regulatory, investigations, consulting, enforcement, legal services, estate plans |
| accounting related | lenders, consultants, analysts, traders, directors, underwriters, planners, appraisers, FBI investigators, market researchers, systems designers, merger services, business valuation, forensic accounting, litigation support, entrepreneurs |
| largest accounting firms | EY, KPMG, PwC, and DeLoitte |
| private accounting | employees working for businesses; majority of opportunities, 54% |
| public accounting | involves accounting services such as auditing and taxation, 24% of opportunities |
| government and not for profit | includes business regulation and law enforcement; 22% of opportunities |
| accounting specialist | highly regarded, and their professional standing is often denoted by a certificate |
| CPA | certified public accountant; must meet education and experience requirements, pass an exam, and be ethical; audit financial statements, must disclose if they do not comply with GAAP |
| CMA | certificate in management accountant |
| CIA | certified internal auditor |
| CB | certified bookkeeper |
| CPP | certified payroll professional |
| CFE | certified fraud examiner |
| CrFA | certified forensic accountant |
| Ethics | Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest. |
| AICPA.org | code of conduct website for accountants |
| three step process for making ethical decisions | 1. identify ethical concerns (use ethics to recognize an ethical concern) 2. analyze options (consider all consequences) 3. make ethical decision (choose best option after weighing all consequences) |
| fraud triangle | shows three factors to a push a person to commit fraud: opportunity, pressure, rationalization |
| opportunity | a person must be able to commit fraud with a low risk of getting caught |
| pressure | incentive, a person must feel this or have motive to commit fraud |
| rationalization | attitude, a person justifies fraud or does not see its criminal nature |
| 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 |
| examples of internal controls | good records, physical controls (locks), and independent reviews |
| auditor | individuals hired to review financial reports and information systems |
| internal auditors | employed to assess and evaluate its system of internal controls, including the resulting reports |
| audit | analysis and report of organization's accounting system, its records, and its reports, using various tests; it examines whether financial statements are prepared using GAAP |
| Dodd Frank Wall Street Reform & Consumer Protection Act | congressional act to promote accountability and transparency in the financial system to end the notion of too big) to fail, to protect the taxpayer by ending bailouts, and to protect consumers from abusive financial services |
| Dodd Frank's wall street provision | clawback mandates recovery; (clawback of excessive pay; whistleblower SEC pays whistleblowers 10 % to 30% of sanction exceeding 1 million |
| ethics risk | boxes highlight ethical issues from practice |
| ethics pay | the $100 million mark in total payments made by the SEC to whistleblowers was recently surpassed; since the SEC began awarding whistleblowers a percentage of money from sanctions over 14,000 tips have been reported; many of the tips come from accountants |
| GAAP | generally accepted accounting principles |
| generally accepted accounting principles | rules that specify acceptable accounting practices; wants information to have relevance and faithful representation |
| relevant information | affects decisions of users |
| faithful representation | means information accurately reflects the business results |
| FASB | financial accounting standards board |
| financial accounting standards board | independent group of full-time members responsible for setting accounting rules |
| SEC | Securities and Exchange Commission |
| Securities and Exchange Commission | federal agency Congress has charged to set reporting rules for organizations that sell ownerships shares to the public |
| IASB | International Accounting Standards Board |
| International Accounting Standards Board | group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS) |
| IFRS | International Financial Reporting Standards |
| International Financial Reporting Standards | set of international accounting standards explaining how types of transactions and events are reported in financial statements; issued by the International Accounting Standards Board |
| four parts of conceptual framework | objectives, qualitative characteristics, elements, recognition, and measurement |
| conceptual framework (part 1) | the basic concepts that underlie the preparation and presentation of financial statements for external users |
| conceptual framework (part 2) | can serve as a guide in developing future standards and resolving accounting issues that are not addressed directly in current standards, using the definitions, recognition criteria, and measurement concepts for assets, liabilities, revenues, and expenses |
| objectives | provide information useful to investors, creditors and others |
| qualitative characteristics | require information that has relevance and faithful representation |
| elements | to define items in financial statements |
| recognition and measurement | to set criteria for an item to be recognized as an element; and how to measure it |
| two types of accounting principles (and assumptions) | general principles specific principles |
| general principles | the assumptions, concepts, and guidelines for preparing financial statements |
| specific principles | detailed rules used in reporting business transactions and events; they are described as we encounter them |
| building block of GAAP | principles, assumptions, constraints |
| principles examples | measurement, full disclosure, revenue recognition, expense recognition |
| assumptions examples | going concern, monetary unit, time period, business entity |
| constraint example | cost benefit |
| four accounting principles | measurement principle (cost principle) revenue recognition principle expense recognition principle (matching principle) full disclosure principle |
| measurement principle (cost principle) | principle that prescribes financial statement information, and its underlying transactions and events, be based and relevant measures of valuation |
| cost | accounting information that is based and measured on cash or equal-to-cash basis; cash given, cash paid; besides cash exchanged, measured as cash value of what is given up or received; considered objective |
| objectivity | means that information is supported by independent unbiased evidence |
| revenue recognition principle | the prescribing that revenue is recognized when goods and services are delivered to customers |
| revenue (sales) | the amount received from selling products and services: usually cash promise to pay at a future date, sales |
| recognize | to record revenue |
| matching (or expense recognition) | prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses |
| full disclosure principle | principle that prescribes financial statements (including notes) to report all relevant information about an entity's operations and financial condition |
| four accounting assumptions | going-concern assumption monetary unit assumption time period assumption business entity assumption |
| going concern assumption | principle that prescribes financial statements to reflect the assumption that the business will continue operating |
| monetary unit assumption | principle that assumes transactions and events can be expressed in money units |
| time period assumption | assumption that an organization activities can be divided into specific time periods such as months quarters, or years |
| business entity assumption | principle that requires a business to be accounted for separately from its owner(s) and from any other entity |
| four attributes of business | sole proprietorship (entrepreneurship), partnership, corporation, limited liability company (LLC) |
| sole proprietorship (proprietorship) | business owned by one person that is not organized as a corporation; entrepreneurship; an unincorporated business with only one owner, who pays personal income tax on profits shared |
| sole proprietorship (number of owners) | 1 owner; easy to set up, |
| sole proprietorship (business taxation) | no additional business income tax |
| sole proprietorship (owner liability) | unlimited liability; owner is personally liable for proprietorship debts |
| sole proprietorship (legal entity) | not a separate legal entity |
| sole proprietorship (business life) | business ends with owner death or choice |
| partnership | an arrangement between two or more people to oversee business operations and share its profits and liabilities |
| partnership (number of owners) | 2 or more, called partners, easy to set up |
| partnership (business taxation) | no additional business income tax |
| partnership (owner liability) | unlimited liability, partners are jointly liable for partnership debts |
| partnership (legal entity) | not a separate legal entity |
| partnership (business life) | business ends with a partner death or choice |
| corporation | a single entity, which may be comprised of individuals or a company, but is separate from its owners |
| corporation (number of owners) | 1 or more called stock holders; can get many investors by selling stock or shares of corporate ownership |
| corporation (owner liability) | limited liability, owners called stockholders (or shareholders) are not liable for corporate acts and debts |
| stockholders (shareholders) | owners of a corporation |
| corporation (legal entity) | a separate entity with the same rights and responsibilities as a person |
| investors | any person who commits capital with expectation of financial returns |
| stock | equity of a corporation divided into ownership units; also called shares |
| shares | equity of a corporation divided into ownership units; also called stock |
| common stock (capital stock) | a corporation's basic ownership share |
| corporation (business life) | indefinite |
| LLC | limited liability company |
| limited liability company | a business structure that protects its owners from personal responsibility for its debts or liabilities |
| limited liability company (number of owners) | 1 or more, called members |
| limited liability company (business taxation) | no additional business income tax |
| limited liability company (owner liability) | limited liability owners, called members, are not personally liable for LLC debts |
| members | owners of a limited liability company (LLC); rights and responsibilities are specified in the operating agreement and the state LLC regulation |
| limited liability company (legal entity) | a separate entity with the same rights and responsibilities as a person |
| limited liability company (business life) | indefinite |
| cost-benefit constraint (cost constraint) | the notion that the benefit of a disclosure exceeds the cost of that disclosure |
| examples of constraints | materiality, conservatism, and industry practices |
| materiality | the ability to influence decisions, sometimes mentioned as a constraint |
| double taxation | corporate income is taxed, and then its later distribution through dividends is normally taxed again for shareholders |
| accounting's two basic aspects of a company | what it owns; what it owes |
| assets | resources a company owns or controls; resources a business owns or controls that are expected to provide current and future benefits to the business; invested amounts; creditor (liabilities) and owner (equity) financing hold claims on these |
| equity | owner claims on company assets; owner's claim on the assets of a business; equals the residual interest in an entity assets after deducing liabilities; also called net assets or owners equity (residual equity) |
| liability | nonowner claims on company assets; creditor's claims on an organizations assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events |
| examples of assets | cash, supplies, equipment, land, and accounts receivable |
| receivable | an asset that promises a future inflow of resources |
| AR or A/R | accounts receivable |
| accounts receivable | money held by a seller or company and are promises of payment from customer to sellers; increased by credit sales on account (or on credit) |
| "on credit" or "on account" | cash is paid at a future date |
| payable | a liability that promises a future outflow of resources |
| examples of payables | wages, payable to workers, accounts payable to suppliers, notes (loans) payable to banks, and tax payable |
| owners equity | residual equity |
| accounting equation | equality involving a company's assets, liabilities, and equity; assets = liabilities + equity; applies to all transactions and events, to all companies and organizations at one point in time; used in a balance sheet |
| accounting for a noncorporation | equity = owner's capital - owner's withdrawal's + revenues - expenses |
| accounting for a corporation | equity = contributed capital + retained earnings + revenues - expense - dividends |
| owner investments | assets put into the business by the owner; called stock issuances |
| expanded accounting equation (equity is minus assets and liabilities) | assets = liabilities + contributed capital + retained earnings = liabilities + common stock - dividends + revenues - expenses |
| four parts of equity | contributed capital (common stock) (+), (dividends) (-); retained earnings (revenues) (+), expenses (-) |
| common stock (+) | reflects inflows of cash and other net assets from stockholders in exchange for stock (stock is part of contributed capital) |
| dividends (-) | outflows of cash and other assets to stockholders that reduce equity |
| revenues (+) | increase equity (via net income) from from sales of products and services to customers; examples are sales of providers consulting services provided, facilities rented to others, and commission from services |
| expenses (-) | decrease equity (via net income) from costs of providing products and services to customers; examples are costs of employee time use of supplies and advertising, utilities, and insurance fees |
| external transactions | exchanges of economic value between one entity and another entity |
| internal transactions | activities within an organization that can affect the accounting equation |
| events | happenings that both affect an organization's financial position and can be reliably measured |
| income statement | revenue - expenses = net income; describes a company's revenues and expenses and computes net income or loss over a period of time; referred as profit and loss statements |
| statement of retained earnings | beg. retained earnings + net income - dividends = end. retained earnings; explains changes in retained earnings from net income (or loss) and any dividends over a period of time |
| balance sheet | assets = liabilities + equity; describes a company's financial position (types and amounts of assets liabilities, and equity) at a point in time |
| statement of cash flows | +/- operating C.F. +/- Investing C.F. +/- Financial C. F. identifies cash inflows (receipts) and cash outflows (payments) over a period of time. |
| net income | amount earned after subtracting all expenses necessary for erand matched with sales for a period; also called income, profitlfit, or earnings |
| net loss | excess or expenses over revenues for a period of time |
| four areas of financial statement analysis organization | (1) liquidity and efficiency (2) solvency (3) profitability and (4) market prospects |
| profitability measure | return on assets (ROA) useful in evaluating management; analyzing and forecasting profits and planning activities |
| ROA | return on assets |
| return on assets | ratio reflecting operating efficiency; defined as net income divided by average total assets for the period also called return on total assets or return on investment (ROI); compared to benchmarks, used as a percentage |
| return on assets (formula) | ROA = net income/average total assets |
| ROI | return on investments |
| average total assets | computed by adding beginning and ending assets of same period and dividing by two |
| return | monies received from an investment; often in percent form |
| risk | uncertainty about an expected return |
| bonds | written promises by organizations to repay amounts loaned with interest |
| three major types of business activities | financing, investing, operating; each require planning |
| planning | defining an organization's ideas, goals, and actions; part of each activity and gives every activity or action meaning and focus |
| financing activities | provide the resources organizations use to pay for assets such as land building, and equipment |
| two sources of financing | owner and nonowner |
| owner financing | refers to resources: contributed by the owner along with any income the owner leaves in the organization |
| nonowner (or creditor) financing | refers to resources loaned by creditors (lenders) |
| investing activities | the acquiring and disposing of assets that an organization uses to buy and sell its products or services |
| operating activities | involve using resources to research, develop, purchase, produce, distribute, market, products and services; below to show that they are the result of investing and financing. |
| costs/expenses | outflow of assets to support operating activities |
| investing (assets)/financing (liabilities & equity) | opposite of each other because they are always equal |
| corporation (business taxation) | additional corporate income tax |
| NR or N/R | notes receiveable |
| notes receivable | example of a loan you would pay back with a note on it, more formal, with interest |
| AP or A/P | accounts payable |
| accounts payable | an example of a liability; or future payment of cash; promises to pay later; come from purchases of merchandise - for - resale supplies, equipment, and services |
| NP or N/P | notes payable |
| notes payable | an example of a liability in which you make a note in your books as a future payment of cash |
| TP or T/P | taxes payable |
| taxes payable | an example of a liability in which you make a tax payment |
| WP or W/P | wages payable |
| wages payable | an example of liability in which you make payment of salaries to employees |
| 2 things that cause equity to increase | investments of assets by owner into the business (owner invests cash into the business in exchange for (common stock); revenue |
| 2 things that cause equity to decrease | withdrawals of assets by owner out of the business (company pays out cash dividends to owner); expenses |
| dual entry accounting | within a single transaction, at least two accounts must be affected |
| four types of financial statements | 1. income statement 2. statement of retained earnings 3. balance sheet 4. statement of cash flows; prepared in this order |
| proper form | the name of the company; the name of the statement; and the correct format for the date depending on the type of statement |
| starting points of financial statements | business transactions & events |
| the process to go from transactions and events to financial statements (part 1) | identify each transaction and event from source documents analyze each transaction and event using the accounting equation recording relevant transactions in a journal |
| the process to go from transactions and events to financial statements (part 2) | post journal information to ledger accounts prepare and analyze the trial balance statements |
| source documents | source of information for accounting entries that can be in either paper or electronic form; also called business papers |
| examples of source documents | sales receipts, checks, purchase orders, bills from suppliers, payroll records, and bank statements |
| accounting records | known as accounting books or the books |
| account | record within an accounting system in which increases and decreases are entered and stored in a specific asset liability, equity, revenue, or expense |
| general ledger (ledger) | record containing all accounts (with amounts) for a business; usually in electronic form; collection of all accounts and their balances; company's size and diversity of operations affect the number of accounts needed |
| unclassified balance sheet | broadly groups accounts into assets, liabilities, and equity |
| asset accounts | an account of a company's assets |
| cash account | shows a company's cash balance; both increases and decreases, money and any fund that a bank accepts for deposit (coins, checks, money orders, and checking account balances) |
| accounts receivable account | account of account receivables; increased by credit sales on account (or on credit); decreased by customer payment; increases or decreases or recorded; multiple customers are kept in separate records for each customer, by A/R - customer name |
| debtors | individuals or organizations who owe money |
| prepaid accounts | assets from prepayments of future expenses (expenses expected to be incurred in future accounting periods); when the expenses are later incurred, the amounts in prepaid accounts are transferred to expenses accounts |
| prepaid accounts (examples) | prepaid insurance, prepaid rent, and prepaid services; expire with passage of time (such as rent) or through use of (prepaid meal plans) |
| prepaid accounts (financial statements) | (1) all expired and used prepaid accounts are recorded as expenses and (2) all expired and unused prepaid accounts are recorded as assets (reflecting future benefits) |
| supplies (account) | assets until they are used; when they are used up, their costs are reported as expenses |
| unused supplies | recorded in a supplies asset account |
| office supplies | includes paper and pens |
| store supplies | include packaging and cleaning materials |
| equipment (account) | an asset; grouped by purpose, for example, office and store equipment |
| equipment (depreciation) | when equipment is used and it wears down its cost is gradually reported as an expense |
| office equipment | includes computers and desks |
| store equipment | include counters and cash registers |
| buildings (account) | stores, offices, warehouses, the factories are assets because they provide expected future benefits |
| buildings (depreciation) | building is used; wears down, cost is reported as an expense |
| several buildings | separate accounts kept for each of them; the cost of building goes into this account |
| intangible assets | assets w/o physical existence |
| land (account) | cost of land is recorded in this |
| liabilities (accounts) | obligations to transfer assets or provide products or services to others; claims by creditors against assets |
| creditors | individuals or organizations entitled to receive payments |
| accounts payable (account) | record all increases/decreases in payables account; multiple supplies, separate records for each, title Accounts payable - Supplier Name; also called trade payables |
| note payable (account) | a written promissory note to pay a future amount - written a short-term note payable or a long term payable, depending on when it must be repaid |
| unearned revenue | liability created when customers pay in advance for products or services; earned when the products and services are later delivered |
| unearned revenue (examples) | magazine subscription collected in advance by a publisher, rent collected in advance by a landlord, season ticket sales by sports teams |
| unearned revenue (accounts) | recorded in a liability account as unearned revenue and when products or services are later delivered then its transferred to revenue accounts |
| accrued liabilities | amounts owed that are not yet paid |
| accrued liabilities (examples) | wages payable, taxes payable, interest payable; separate liability accounts by same title in the ledger, if not a large amount; one or more ledger accounts can be added and reported as a single amount |
| residual interest | the equity that the owner has in the assets of a business after subtracting liabilities |
| equity equation | equity = common stock - dividends + revenues - expenses |
| current items | expected to be collected or owed within the next year |
| classified balance sheet | groups accounts into classifications (such as land and buildings into plant assets); report current assets before noncurrent assets and current liabilities before noncurrent liabilities |
| owner investments | increases both assets and equity; not revenues |
| common stock | recorded as increase to equity account |
| owner distributions | corporations distribute assets to its owners; decreases company's assets and total equity; not expenses |
| dividends | recorded as a decrease to equity account; not expenses |
| revenue accounts | recorded as amounts received from sales of products and services to customers, which will always increase equity |
| revenue accounts (examples) | sales, commissions earned, professional fees earned, rent revenue, interest revenue |
| expense accounts | recorded as amounts used for costs of providing products and services, which will always decrease equity |
| expense accounts (examples) | advertising expense, salaries expense, rent expense, utilities expense, and insurance expense |
| chart of accounts | list of accounts used by a company, includes an identification number for each account |
| account number | three-digit code that is useful in record keeping |
| T-account | tool used to show the effects of transactions and events on the individual accounts; shaped in the form of a T |
| debit (abbreviation) | Dr. |
| debit | recorded on the left side; an entry that increases an asset or expense account, or decreases a liability, revenue, or equity |
| credit (abbreviation) | Cr. |
| credit | recorded on right side; an entry that decreases an asset or expenses account, or increases a liability, revenue, or equity account |
| account balance | difference between total debits and total credits (including the beginning balance) for an account |
| debit balance | when the account's total debits exceed total credits |
| credit balance | when the account's total credits exceed total debits |
| zero balance | when the account's total debits equal total credits; written with a zero or dash in balance column |
| double entry accounting | accounting system in which each transaction affects at least two accounts and has at least one debit and one credit; demands the accounting equation remain in balance |
| double entry accounting (equation) | total debits (Dr.) = total credits (Cr.); for all entries and accounts on the ledger; total debit account balances must equal total credit account balances |
| assets (debits and credits) | debit (Dr.) for increases (+) (normal) / credit (Cr.) for decreases (-) |
| liabilities (debits and credits) | debit (Dr.) for decreases (-) / credit (Cr.) for increases (+) (normal) |
| equity | debit (Dr.) for decreases (-) / credit (Cr.) for increases (+) (normal) |
| normal balance side (assets) | the left side |
| normal balance side (liabilities and equity) | the right side |
| common stock (debits and credits) | debit (Dr.) for decreases (-) / credit (Cr.) for increases (+) (normal) |
| dividends (debits and credits) | debit (Dr.) for increases (+) (normal) / credit (Cr.) for decreases (-); (SRE) |
| revenues (debits and credits) | debit (Dr.) for decreases (-) / credit (Cr.) for increases (+) (normal) |
| expenses (debits and credits) | debits (Dr.) for increases (+) (normal)/ credit (Cr.) for decreases (-) |
| journal | record in which transactions are entered before they are posted to ledger accounts; also called book of original entry |
| journalizing | process of recording transaction in a journal |
| posting | processing of transferring journal entry information to the ledger; computerized systems automate this process |
| general journal | all purpose journal for recording the debits and credits of transactions and events |
| PR | posting reference |
| posting reference | a column in journals in which individual ledger account numbers are entered when entries are posted to those ledger accounts |
| balance column account | account with debit and credit columns for recording entries and another column for showing the balance of the the account after each entry |
| normal balance | a balance in which an account is assumed |
| abnormal balance | a balance in which is computed contrarily from its typical balance (ex. there are more computed credits in a normal debit balance) |
| abnormal balance (examples) | a customer overpaying a bill (AR credit balance) identified by setting in brackets or entering it in red |
| compound journal entry | an entry that affects three or more accounts |
| trial balance | list of ledger accounts and their balances (either debit or credit) at least at a point in time; total debit balances equal total credit balances |
| reverse order | method to search for an error should the trial balance not balance by checking the journalizing, posting, and trial balance |
| accounting, fiscal, year | one-year reporting period |
| calendar-year | accounting year beginning on January 1 and ending on December 31 |
| bottom line (income statement) | net income |
| balance sheet (account form) | assets on the left and liabilities and equity on the right |
| balance sheet (report form) | assets on top, followed by liabilities and then equity |
| financial leverage | when a company finances a relatively large portion of its assets with liabilities, this tends to be higher; reflects the debt ratio |
| debt ratio | ratio of total liabilities to total assets; used to reflect risk associated with a company's debts |
| debt ratio (equation) | debt ratio = total liabilities / total assets |
| cash | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| A/R accounts receivable | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| inventory | (normal balance) (Dr.) Thus a Dr. increases, and a Cr, decreases; asset; BS |
| office supplies | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| prepaid expenses | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| N/R notes receivable | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| land | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| equipment | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| vehicles | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| building | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; asset; BS |
| A/P (accounts payable) | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; liability; BS |
| unearned revenue | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; liability; BS |
| wages payable | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; liability; BS |
| N/P (notes payable) | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; liability; BS |
| salaries payable | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; liability; BS |
| interest payable | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; liability; BS |
| common stock | (normal balance) (Cr.) Thus a Cr. increases, and Dr. decreases; equity; BS |
| dividends (normal balance) | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; equity; SRE |
| retained earnings | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; equity; SRE, BS |
| revenue (all types) | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; equity; IS |
| expenses (all types) | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; equity; IS |
| consulting revenue | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; equity; IS |
| interest revenue | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; equity; IS |
| haircutting revenue | (normal balance) (Cr.) Thus a Cr. increases, and a Dr. decreases; equity; IS |
| interest expense | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; equity; IS |
| salaries expense | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; equity; IS |
| utilities expense | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; equity; IS |
| rent expense | (normal balance) (Dr.) Thus a Dr. increases, and a Cr. decreases; equity; IS |
| normal debit balance account | an account when a debit increases it and a credit decreases it |
| normal credit balance account | an account when a credit increases it and a debit decreases it |
| Sarbanes-Oxley Act (SOX) (part 1) | Legislation that created the Public Company Accounting Oversight Board, regulates analyst conflicts, imposes corporate governance requirements, |
| Sarbanes-Oxley Act (SOX) (part 2) | enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct, and expands penalties for violations of federal securities laws |
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