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Fundamental Accounting Definitions 1 of 2

Quiz yourself by thinking what should be in each of the black spaces below before clicking on it to display the answer.
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Question
Answer
show Method that produces larger depreciation charges in the early years of an asset's life and smaller charges in its later years  
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show Record within an accounting system in which increases and decreases are entered stored in a specific asset, liability, equity, revenue, or expense  
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show Difference between total debits and total credits (including the beginning balance) for an account  
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Account Form Balance Sheet   show
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show Liability created by buying goods or services on credit; backed by the buyer's general credit standing  
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show Information and measurement system that identifies, records, and communications relevant information about a company's business activities  
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Accounting Cycle   show
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show Equality involving a company's assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation  
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show People, records, an methods that collect and process data from transactions and events, organize them in useful forms, and communicate results to decision makers  
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Accounting Period   show
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show Subsidiary ledger listing individual creditor (supplier) accounts  
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Accounts Receivable   show
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show Subsidiary ledger listing individual customer accounts  
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show Measure of both the quality and liquidity of accounts receivable; indicates how often receivables are received and collected during the period; computed by dividing net sales by average accounts receivable  
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Accrual Basis Accounting   show
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Accrued Expenses   show
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Accrued Revenues   show
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show Cumulative sum of all depreciation expenses recorded for an asset  
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Acid-Test Ratio   show
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show List of accounts and balances prepared after period-end adjustments are recorded and posted  
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Adjusting Entry   show
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show Process of classifying accounts receivable by how long they are past due for purposes of estimating uncollectible accounts  
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Allowance for Doubtful Accounts   show
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show Procedure that (a) estimates and matches bad debts expense with its sales for the period and/or (b) reports accounts receivable at estimated realized value  
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show Process of allocating the cost of an intangible asset to expense over its estimated useful life  
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show Financial statements covering a one-year period; often based on a calendar year, but any consecutive 12-month (or 52-week) period is acceptable  
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show Summary of a company's financial results for the year with its current financial condition and future plans; directed to external users of financial information  
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show Series of equal payments at equal intervals  
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Assets   show
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Audit   show
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Bad Debts   show
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show Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry  
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Balance Sheet   show
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show Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement  
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Bank Statement   show
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Batch Processing   show
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show Expenditures to make a plant asset more efficient or productive; also called improvements  
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show Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account  
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show An organization of one or more individuals selling products and/or services for profit  
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Business Entity Principle   show
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show Corporation that does not qualify for nor elect to be treated as a proprietorship or partnership for income tax purposes and therefore is subject to income taxes; also called C corp  
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show Checks that the bank has paid and deducted from the depositor's account  
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Capital Expenditures   show
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show Record the cost as part of a permanent account and allocate it over later periods  
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Cash   show
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Cash Basis Accounting   show
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show Special journal normally used to record all payments of cash; also called cash payments journal  
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Cash Discount   show
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show Short-term, investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes  
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show Income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments  
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show Special journal normally used to record all receipts of cash  
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show Change in an accounting estimate that results from new information, subsequent developments, or improved judgment that impacts current and future periods  
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show List of accounts used by a company; includes an identification number for each account  
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Check   show
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Check Register   show
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Classified Balance Sheet   show
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show Entries recorded at the end of each accounting period to transfer end-of-period balances in revenue, gain, expense, loss, and withdrawal (dividend for a corporation) accounts to the capital account (to retained earnings for a corporation)  
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show Necessary end-of-period steps to prepare the accounts for recording the transaction of the next period  
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Columnar Journal   show
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show Corporation's basic ownership share; also generically called capital stock  
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show Information system principle that prescribes an accounting system to conform with a company's activities, personnel, and structure  
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show Key elements of an accounting information systems that include source documents, input devices, information processors, information storage, and output devices  
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Compound Journal Entry   show
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Computer Hardware   show
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Computer Network   show
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show Programs that direct operations of computer hardware  
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show Principle that prescribes the less optimistic estimate when two estimates are about equally likely  
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Consignee   show
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Consignor   show
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show Principle that prescribes use of the same accounting method(s) over time so that financial statements are comparable across periods  
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Contingent Liability   show
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Contra Account   show
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Control Principle   show
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show General ledger account, the balance of which (after posting) equals the sum of the balances in its related subsidiary ledger  
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Copyright   show
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show Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders  
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Cost   show
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show Consists of beginning inventory plus net purchases of a period  
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Cost of Goods Sold   show
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Cost of Principle   show
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show Information system principle that prescribes the benefits from an activity in an accounting system outweigh the costs of that activity  
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show Recorded on the right side; an entry that decreases asset and expense accounts, and increases liability, revenue, and most equity accounts abbreviated Cr.  
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Credit Memorandum   show
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show Time period that can pass before a customer's payment is due  
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Credit Terms   show
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show Individuals or organizations entitled to receive payments  
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Current Assets   show
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Current Liabilities   show
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Current Portion of Long-Term Debt   show
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show Ratio used to evaluate a company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities  
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show Date the directors vote to pay a divided  
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show Date the corporation makes the dividend payment  
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show Estimate of number of days needed to convert inventory into receivables or cash; equals ending inventory divided by cost of goods sold and then multiplied by 365; also called days' stock on hand  
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show Measure of the liquidity of receivables computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365; also called days' sales in receivables  
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Debit   show
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Debit Memorandum   show
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show Ratio of total liabilities to total assets; used to reflect risk associated with a company's debts  
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Debtors   show
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Declining-Balance Method   show
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show Corporation income taxes that are deferred until future years because of temporary difference between GAAP and tax rules  
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Depletion   show
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Deposit in Transit   show
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Deposit Ticket   show
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show Cost of a plant asset less its salvage value  
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show Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset  
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Direct Write-Off Method   show
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show Expenses resulting from not taking advantage of cash discounts on purchases  
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Discount on Note Payable   show
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Discount Period   show
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Discount Rate   show
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show Corporate income is taxed and then its later distribution through dividends is normally taxed again for shareholders  
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show Depreciation equals beginning book value multiplied by 2 times the straight-line rate  
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show Accounting system in which each transaction affects at least two accounts and has at least one debit and credit  
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show Use of electronic communication to transfer cash from one party to another  
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Employee Benefits   show
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Employee Earnings Report   show
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Enterprise Resource Planning (ERP) Software   show
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show Organization that, for accounting purposes, is separate from other organizations and individuals  
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EOM   show
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show Owner's claim on the assets of a business; equals the residual interest in an entity's asset after deducting liabilities; also called net assets  
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show Obligation of uncertain amount that can be reasonably estimated  
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show Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest  
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show Happenings that both affect an organization's financial position and can be reliably measured  
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show Assets=Liabilities + Equity; Equity equals [Owner Capital - Owner Withdrawals + Revenues - Expenses] for a non-corporation; Equity equals [Contributed Capital + Retained Earnings + Revenues - Expenses] for a corporation where dividends are subtracted from  
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show Outflows or using up of assets as part of a business to generate sales  
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External Transactions   show
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show Persons using accounting information who are not directly involved in running the organization  
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Extraordinary Repairs   show
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Federal Depository Bank   show
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show Taxes assessed on both employers and employees; for Social Security and Medicare programs  
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show Payroll taxes on employers assessed by the federal government to support its unemployment insurance programs  
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Financial Accounting   show
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Financial Accounting Standards Board (FASB)   show
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Financial Statements   show
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First-in, First-out (FIFO)   show
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Fiscal Year   show
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Flexibility Principle   show
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show Annual report form filed with SEC by businesses (small businesses) with publicly-traded securities  
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Form 940   show
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Form 941   show
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Form W-2   show
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show Withholding allowance certificate, filed with the employer, identifying the number of withholding allowances claimed  
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Franchises   show
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show Principle that prescribed financial statements (including notes) to report all relevant information about an entity's operations and financial condition  
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show Expenses that support the operating of a business  
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General Journal   show
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show Partner who assumes unlimited liability for the debits and credits of transactions and events  
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show Partnership in which all partners have mutual agency and unlimited liability for partnership debts  
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show Rules that specify acceptable accounting practices  
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show Rules that specify acceptable auditing practices  
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show Principle that prescribes financial statements to reflect the assumption that the business will continue operating  
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show Amount by which a company's (or a segment's) value exceeds the value of its individual assets less its liabilities  
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show Gross margin (net sales minus cost of goods sold) divided by net sales; also called gross profit ratio  
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show Method of recording purchases at the full price without deducting any cash discounts  
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show Total compensation earned by an employee  
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show Net sales minus cost of goods sold; also called gross margin  
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show Procedure to estimate inventory when the past gross profit ratio is used to estimate cost of goods sold, which is then subtracted from the cost of goods available for sale  
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Impairment   show
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Imprest System   show
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show Condition in which the capacity of plant assets is too small to meet the company's production demands  
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show Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also indicates any gains or losses  
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show Temporary account used only in the closing process to which the balances of revenue and expense accounts (including any gains or losses) are transferred; its balance is transferred to the capital account (or retained earnings for a corporation)  
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Indefinite Useful Life   show
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Information Processor   show
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show Component of an accounting system that keeps data in a form accessible to information processors  
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show Means of capturing information from source documents that enables its transfer to information processors  
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Intangible Assets   show
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show Charge for sing money (or other assets) loaned for one entity to another  
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show Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods  
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Internal Controls or Internal Control System   show
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Internal Transactions   show
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Internal Users   show
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show Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS)  
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Inventory   show
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show Number of times a company's average inventory is sold during a period; computed by dividing cost of goods sold by average inventory; also called merchandise turnover  
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Invoice   show
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Invoice Approval   show
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Journal   show
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show Process of recording transactions in a journal  
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show Obligations of a company with little uncertainty; set by agreements, contracts, or laws also called definitely determinable liabilities  
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show Assets that increase the benefits of land, have a limited useful life, and are depreciated  
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Last-In; First-Out (LIFO)   show
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Lease   show
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show Rights the lessor grants to the lesee under the terms of a lease  
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Leasehold Improvements   show
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show Record containing all accounts (with amounts) for a business; also called general ledger  
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Lessee   show
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Lessor   show
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Liabilities   show
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Limited Liability   show
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Limited Liability Company   show
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show Partnership in which a partner is not personally liable for malpractice or negligence unless that partner is responsible for providing the service that resulted in the claim  
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Limited Partners   show
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Limited Partnership   show
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show Resources suck as cash that are easily converted into other assets or used to pay for goods, services, or liabilities  
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show Availability of resources to meet short-term cash requirements  
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show Catalog (full) price of an item before any trade discount is deducted  
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Long-term Investments   show
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Long-term Liabilities   show
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Lower the Cost or Market (LCM)   show
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show Entity who signs a note and promises to pay at it maturity  
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show Area of accounting mainly aimed at serving the decision-making needs of internal users; also called management accounting  
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Manufacturer   show
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matching Principle   show
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show Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP  
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show Date when a note's principle and interest are due  
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Merchandise Inventory   show
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show Entity that earns net income by buying and selling merchandise  
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show Rating signed to an employer by a state based on the employer's record of employment  
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Modified Accelerated Cost Recovery System (MACRS)   show
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show Principle that assumes transactions and events can be expressed in money units  
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Multiple-Step Income Statement   show
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Mutual Agency   show
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Natural Business Year   show
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show Assets physically consumed when used; examples are timber, mineral deposits, and oil and gas fields; also called wasting assets  
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Net Income   show
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Net Loss   show
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Net Method   show
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Net Pay   show
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Net Realizable Value   show
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Noninterest-Bearing Note   show
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show Maker's bank account has insufficient money to pay the check; also called hot check  
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Note Payable   show
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Note Receivable   show
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show Principle that prescribes independent, unbiased evidence to support financial statement information  
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show Condition in which, because of new inventions and improvements, a plant asset can no longer be used to produce goods or services with a competitive advantage  
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show Approach to inputting data from source documents as soon as the information is available  
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show Normal time between paying cash for merchandise or employee services and receiving cash from customers  
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Ordinary Repairs   show
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Output Devices   show
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Outstanding Checks   show
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show Account showing the owner's claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company's inception; also referred to as equity  
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show Assets put into the business by the owner  
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show Partner net income divided by average partner equity for the period  
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Partnership   show
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show Agreement among partners that sets terms under which the affairs of the partnership are conducted; also called articles of partnership  
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show Dissolution of a partnership by (1) selling noncash assets and allocating any gain or loss according to partners' income-and-loss ratio, (2) paying liabilities, and (3) distributing and remaining cash according to partners' capital balances  
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show Exclusive right granted to its owner to produce and sell an item or to use a process for 17 years  
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Payee of the Note   show
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Payroll Bank Account   show
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Payroll Deductions   show
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show Record for a pay period that shows the pay period dates, regular and overtime hors worked, gross pay, net pay, and deductions  
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Periodic Inventory System   show
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Permanent Accounts   show
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show Method that maintains continuous records of the cost of inventory available and the cost of goods sold  
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show Small amount of cash in a fund to pay minor expenses; accounted for using an imprest system  
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Plant Assets   show
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show List of permanent accounts and their balances from the ledger after all closing entries are journalized and posted  
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show Process of transferring journal entry information to the ledger; computerized system automate this process  
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Posting Reference (PR) Column   show
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show Statements that show the effects of proposed transactions and events as if they had occurred  
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show Item paid for in advance of receiving their benefits; classifies as assets  
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show Amount that the signer of a note agrees to pay back when it matures, not including interest  
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Principles of Internal Control   show
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Profit Margin   show
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Promissory Note (Note)   show
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show Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period  
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show Document used by the purchasing department to place an order with a seller (vendor)  
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Purchase Requisition   show
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Purchases Journal   show
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show Expected proceeds from converting an asset into cash  
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Receiving Report   show
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Recordkeeping   show
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show Information system principle prescribing that its reports be useful, understandable, timely, and pertinent for decision making  
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Report Form Balance Sheet   show
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Retail Inventory Method   show
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show Intermediary that buys products from manufacturers or wholesalers and sells them to consumers  
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show Monies received from an investment often in percent form  
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Revenue Expenditures   show
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Revenue Recognition Principle   show
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show Gross increase in equity from a company's business activities that earn income; also called sales  
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Reversing Entries   show
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show Uncertainty about an expected return  
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S Corporation   show
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Sales Discount   show
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Sales Journal   show
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Salvage Value   show
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Schedule of Accounts Payable   show
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Schedule of Accounts Receivable   show
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Securities and Exchange Commission (SEC)   show
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Segment Return on Assets   show
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Selling Expenses   show
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Service Company   show
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Shareholders   show
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show Equity of a corporation divided into ownership units; also called stock  
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Short-Term Note Payable   show
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Shrinkage   show
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Signature Card   show
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Single-Step Income Statement   show
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show Being accountable for the impact that one's actions might have on society  
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show Business owned by one person that is not organized as a corporation; also called proprietorship  
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Source Documents   show
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Special Journal   show
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Specific Identification   show
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Spreadsheet   show
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State Unemployment Taxes (SUTA)   show
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Statement of Cash Flows   show
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show FASB publications that establish U.S. GAAP  
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show Report of changes in equity over a period; adjusted for increases (owner investment and net income) and for decreases (withdrawals and net loss)  
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Straight-Line Depreciation   show
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show List of individual sub-accounts and amounts with a common characteristic; linked to a controlling account in the general ledger  
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Supplementary Records   show
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show Tool used to show how the effects of transactions an the events on individual accounts  
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Temporary Accounts   show
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show Ratio of income before interest expense (and any income taxes) divided by interest expense; reflects risk of covering interest commitments when income varies  
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show Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years  
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Total Asset Turnover   show
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Trade Discount   show
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show Symbol, name, phrase, or jingle identified with a company, product, or service  
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show Exchange of economic consideration affecting an entity's financial position that can be reliably measured  
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Trial Balance   show
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show List of accounts and balances prepared before accounting adjustments are recorded and posted  
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show Balance sheet that broadly groups assets, liabilities, and equity accounts  
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show Liability created when customers pay in advance for products or services; earned when the products or services are later delivered  
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Unites-of-Production Depreciation   show
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Unlimited Liability   show
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show Length of time an asset will be productively used in the operations of a business; also called service life  
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show Buyer of goods or services  
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Vendor   show
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show Internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded  
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Voucher Register   show
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Voucher System   show
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show Table of the amounts of income tax withheld from employee's wages  
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Warranty   show
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show Method to assign inventory cost to sales; the cost of available-for-sale units is divided by the number of units available to determine per unit cost prior to each sale that is then multiplied by the units sold to yield the cost of that sale  
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Wholesaler   show
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Withdrawals   show
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Work Sheet   show
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show Analyses and other informal reports prepared by accountants and managers when organizing information for formal reports and financial statements  
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