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ACCTG211(SP11-WC) #2

Chapter 2

QuestionAnswer
Salaries are fixed payments to employees every pay period; wages are variable payments to employees generally based on number of hours worked Salaries vs. Wages
A balance sheet showing a subtotal for certain categories of assets, liabilities, and stockholders’ equity e.g., current assets; current liabilities Classified Balance Sheet
Liabilities that will take more than a year to settle e.g.’ 10-year note payable, 30-year mortgage Long-Term Liabilities
Acquisition of financing for business through the establishment of a liability with a lender e.g.; loans, mortgages, notes Borrowing from Others
Analogous to contributed capital; represents the amount owners have put into the business Paid-In-Capital
Changing the accounting records at the end of the fiscal period to reflect the financial condition of the company at that date Adjusting the Books
A measure of how easily an asset can be converted into cash; the more easily an asset can be converted into cash, the more liquid it is Liquidity
Asset; insurance that a company has purchased, but not yet used Prepaid Insurance
Owners’ claim on the assets of a firm; encompasses both contributed capital and retained earnings Equity
All revenues minus all expenses Net Profit
Estimated value of an asset at the end of its useful life (also called salvage value); deducted from an asset’s cost before the calculation of depreciation expense under many depreciation methods Residual Value
An amount deducted from an asset e.g., accumulated depreciation Contra-Asset
The method accountants use to recognize revenues and expenses; firms recognize revenues when they are earned and recognize expenses when they are incurred; the exchange of cash does not determine revenue and expense recognition for the income statement Accrual Accounting
Asset; accounts owed by customers to a company for goods or services purchased on credit Accounts Receivable
Contra-asset; cumulative depreciation expense taken on a long-term asset over its life; reduction to the cost of a long-term asset Accumulated Depreciation
Synonym for book value Carrying Value
Assets that a company plans to turn into cash or generate revenue during the next fiscal year e.g., accounts receivable, inventory Current Assets
Accounting principle that requires expenses to be recognized (shown in the income statement) in the same period as the revenue they help to generate Matching Principle
Means on credit; used in conjunction with buying or selling on credit On Account
Liability; represents the amount of goods or services that a company owes a customer following a prepayment of cash by the customer Unearned Revenue
Liabilities a company will pay off within the next fiscal year e.g.; accounts payable, salaries payable Current Liabilities
Asset; amounts owed by customers to a company for goods or services purchased on credit Accounts Receivable
A transaction in which the exchange of cash precedes the recognition of revenue or the incurrence of an expense e.g., prepayment of rent for building, receipt of subscription payment from customer in advance of delivery Deferral
A Transaction in which revenue is earned or an expense is incurred prior to the exchange of cash e.g., salaries expense for hours worked, but not yet paid, interest expense for prior to the interest payment date Accrual
Assets that will last more than a year e.g., buildings, equipment, land Long-Term Assets
Revenue that has been recorded and will appear on the income statement Recognized Revenue
The difference between a company’s current assets and current liabilities Working Capital
A liquidity ratio that measures a company’s ability to meet its short-term obligations Current Ratio
Liability; amounts owed by companies to their vendors for purchases made on credit Accounts Payable
The difference between an asset’s cost and the related accumulated depreciation Book Value
A method of accounting for transactions based on the exchange of cash; revenue is recognized when cash is received, while expenses are recognized when cash is paid; this method is not accepted under GAAP Cash Basis Accounting
Created by: jlb89