Trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements.
A financial statement that presents the financial position of the company on a particular date
Financial accounting information is provided only when the benefits of doing so exceed the costs
Cash payments to stockholders (temporary account)
Costs of providing products and services
Measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes
Generally Accepted Accounting Principles
The rules of financial accounting (GAAP)
A financial statement that reports the company's revenues and expenses over an interval of time
Transactions involving the purchase and sale of long-term resources such as land, buildings, equipment and machinery and resources not directly related to a company's normal operations
Amounts owed to creditors
Transactions involving the primary operations of the company, such as providing products and services to customers and the associated costs of doing so, like utilities, taxes, advertising, wages, rent and maintenance.
Cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends.
Statement of cash flows
A financial statement that measures activities involving cash receipts and cash payments over an interval of time
Statement of Stockholders equity
A financial statement that summarizes the changes in stockholders equity over an interval of time
Stockholders', or owners, claims to resources, which equal the difference between total assets and total liabilities.
All accounts used to record the company's transactions
A chronological record of all transactions affecting a firm
A simplified form of a general ledger account with space at the top for the account title and 2 sides for recording debits and credits
A list of all accounts and their balances at a particular date, showing that total debits=total credits
Record revenues when earned (the revenue recognition principle) and expenses with related revenues (matching principle)
When a company has incurred an expense but hasn't yet paid cash or recorded an obligation to pay
When a company has earned revenue but hasn't yet received cash or recorded an amount receivable
Adjusted trail balance
A list of all accounts and their balances after we have updated account balances for adjusting entries
Entries used to record events that occur during the period but that have not yet been recorded by the end of the period
Record revenues at the time that cash is received and expenses at the time cash is paid.
Entries that transfer the balances of all temporary accounts (revenues, expenses, dividends) to the balance of the retained earnings account
Recognize expenses in the same period as the revenues they help to generate
Post closing Trial balance
A list of all accounts and their balances at a particular date after we have updated account balances for closing entries
That cost of assets acquired in one period that will be expensed in future period
Revenue Recognition Principle
Record revenue in the period in which it's earned
When a company receives cash in advance from a customer for products or services to be provided in the future
Matching the balance of cash in the back account with the balance of cash in the company's own records
Examples of Cash
currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts, such as checks received from customers and cash equivalents
Short-term investments that have a maturity date no longer than 3 months from the date of purchase
Checks the company has written that have not been subtracted from the bank's record of the company's balance
2 or more people acting in coordination to circumvent internal controls
A company's plan to improve the accuracy and reliability of accounting information and safeguard the company's assets.
Checks drawn on non-sufficient funds or "bad" checks from customers
Petty cash fund
Small amount of cash kept on hand to pay for minor purchases
The amount of cash owed to the company by its customers from the sale of products or services on account.
Using a higher percentage for "old" accounts than for "new" accounts when estimating uncollectible accounts.
Allowance for uncollectible accounts
Contra asset account representing the amount of accounts receivable that we do not expect to collect
Recording an adjusting entry at the end of each period to allow for the possibility of future uncollectible accounts. The adjusting entry has the effects of reducing assets and increasing expenses.
Average Collection Period
Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio.
Bad Debt Expense
The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period.
Direct Write-off Method
Recording bad debt expense at the time we know the account is uncollectible
Transfer of products and services to a customer today while bearing the risk of collecting payment from that customer in the future. Also known as sales on account or services on account.
Net Realizable Value
The amount of cash the firm expects to collect
Formal credit arrangements evidenced by a written debt instrument, or note
Receivables turnover ratio
Number of times during a year that the average accounts receivable balance is collected (or "turns over"). It equals net credit sales divided by average accounts receivable.
Seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service.
Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time.
Customer returns a product.
Reduction in the listed price of a product of service.
Customer's accounts that are no longer considered collectible.
Operating Cash Flows
cash receipts and cash payments for transactions involving revenues and expenses
Investing Cash Flows
include purchase and sale of investments and productive long-term assets (more than a year)
Financing Cash Flows
include: borrowing money and repaying debt, with stockholders: issuing stock and paying dividends
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