ACCT 2301 Exam 2 Chapters 4-5 PDF

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ACCT 2301 Exam 2 Chapters 4 & 5 Accrual-basis accounting Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged Accrued expenses Expenses incurred but not yet paid in cash or recorded Accrued revenues revenues for services performed but not yet received in cash or recorded Adjusted trial balance a list of accounts and their balances after all adjustments have been made Adjusting entries Entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed Book value The difference between the cost of a depreciable asset and its related accumulated depreciation Cash-basis accounting accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash Closing entries Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account. Retained Earnings Contra asset account An account that is offset against an asset account on the balance sheet. Depreciation The process of allocating the cost of an asset to expense over its useful life Earnings Management The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income. Expense recognition principle (Matching principle) The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues

Fiscal Year An accounting period that is one year long Income Summary A temporary account used in closing revenue and expense accounts Periodicity assumption An assumption that the economic life of a business can be divided into artificial time periods Permanent accounts Balance sheet accounts whose balances are carried forward to the next accounting period Post-closing trial balance A list of permanent accounts and their balances after a company has journalized and posted closing entries Prepaid expenses (prepayments) Expenses paid in cash before they are used or consumed Quality of earnings Indicates the level of full and transparent information that a company provides to users of its financial statements Revenue recognition principle The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied Reversing entry An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period. Temporary accounts revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period. Unearned Revenues Cash received and a liability recorded before services are preformed Useful life The length of service of a productive asset

Worksheet A multiple-column form that companies may use in the adjustment process and in preparing financial statements Contra revenue account An account that is offset against a revenue account on the income statement Cost of goods sold The total cost of merchandise sold during the period Gross Profit The excess of net sales over the cost of goods sold Gross Profit rate Gross profit expressed as a percentage by dividing the amount of gross profit by net sales Net sales Sales less sales returns and allowances and sales discounts Periodic inventory system An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period Perpetual inventory system A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand Profit margin Measure the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales Purchase allowance A deduction made to the selling prices of merchandise, granted by the seller, so that the buyer will keep the merchandise Purchase discount A cash discount claimed by a buyer for prompt payment of a balance due. Purchase invoice A document that provides support for each purchase

Purchase Return A return of goods from the buyer to the seller for cash or credit. Quality of earnings ratio A measure used to indicate the extent to which a company's earnings provide a full and transparent depiction of its performance, computed as net cash provided by operating activities divided by net income Sales Discount A reduction given by a seller for prompt payment of a credit sale Sales invoice A document that provides support for each sale Sales returns and allowances Transactions in which the seller either accepts goods back from the purchaser or grants a deduction in the purchase price so that the buyer ill keep the goods Sales Revenue Primary source of revenue for a merchandising company...