accounting terminology

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accounting terminology
2014-08-31 21:33:41
accounting terminology

accounting terminology basic
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  1. Assets
    All of the property owned by the corporation
  2. Liabilities
    All of the debts that the company currently has outstanding to lenders
  3. Owner Equity (AKA Shareholder equity)
    Company's ownership's interest in company assets, after all debts have been paid
  4. Cash equivalents
    any investment that will mature within 3 months
  5. Inventory
    goods kept in stock, available for sale
  6. Accounts receivable
    Amounts due rom customers for goods or services that have already been delivered
  7. Property, plant, and equipment
    items of value that cannot be readily converted into cash
  8. Accounts payable
    amounts due to suppliers for goods or services that have already been received
  9. notes payable
    amounts due to suppliers for goods or services that have already been received
  10. notes payable
    Contractual obligations due to lenders
  11. Common stock
    amounts invested by the owners of the company
  12. retained earnings
    sum of all net income over the life of the business that has not been distributed to owners in the form of a dividend
  13. Current (assets or liabilities)
    Those assets/liabilities expected to be converted into cash within 12 months
  14. Long-term assets/liabilities
    Those assets/liabilities NOT expected to be converted into cash within 12 months
  15. Income statement
    • shows a company's financial performance over a period of time (usually one year)
    • AKA- profit and loss statement (P&L)
  16. balance sheet
    shows a company's financial situation at a point in time
  17. Gross profit
    sum of a company's revenue minus Cost of Goods Sold
  18. Cost of Goods Sold
    the amount that the company paid for the goods that it sold over the course of the period
  19. Operating Income
    those coming from the sale of the business's primary products or services
  20. Operating expenses
    • The expenses related to the core operation of the business
    • ex. rent, employee wages, insurance premiums
  21. Cash flow statement
    reports a company's cash inflows and outflows over a period of time
  22. Three categories of cash flows
    • Cash flow from operating activities
    • Cash flow from investing activities
    • Cash flow from financing activities
  23. Cash flow from investing activities
    • Cash resulting from the purchase/sale of investments in financial securities (bonds/stocks)
    • Cash resulting from the purchase/sale of capital assets (assets expected to last longer than one year)
  24. Cash flow from financing activities
    • Related to transactions with the company's owners and creditors
    • ex: cash received from new stock being issued, dividends being paid, cash received from a loan
  25. Current liquidity ration
    Current ration = Current Assets / Current liabilities
  26. Quick liquidity ratio
    • Quick ration= (Current Assets - Inventory) / Current liabilities
    • *Note: excludes inventory to show worst case scenario
  27. Return on Assets
    = Net Income / Total Assets
  28. Return on Equity
    Net Income/ Shareholders' Equity
  29. Gross profit margin
    • Gross profit margin = (Sales - Cost of Goods Sold) / Sales
    • Used to compare similar companies to see which one operates more efficiently
  30. Debt Ratio
    • Debt ratio = Liabilities / Assets
    • Shows what portion of the company's assets have been financed with debt
  31. Debt-to-equity ration
    • Debt to equity ratio = liabilities / Owners' equity
    • Shows the ratio of financing vie debt compared to financing via capitol from investors
  32. Asset turnover ratios
    • Show how efficiently a company uses its assets
    • Most comon: Inventory turnover, and accounts receivables turnover
  33. Inventory turnover
    cost of goods sold/ average inventory
  34. Average inventory
    = Beg. Inventory + End. Inventory / 2
  35. Inventory period
    Inventory period = 365 / inventory turnover
  36. Debt journal entry
    will increase an asset account, and will decrease a liability or owner's equity account
  37. Credit journal entry
    will decrease an asset account, and will increase a liability or owners' equity account
  38. General ledger
    the place where all of a company's journal entries get recorded
  39. Cash method of accounting
    • Sales are recorded when cash is received
    • expenses are recorded when cash is sent out
    • Does not always accurately reflect the financial situation
  40. Accrual Method of accounting
    • Revenue and expenses are recorded the moment their respective services are provided or goods are received
    • Makes up for time lags between payments and providing services
  41. Prepaid expenses
    • Prepaid expenses are counted as an asset under the accrual method
    • (ex. three months rent paid in advance)
  42. Unearned Revenue
    Revenue already received for goods/services which have not been delivered (debt)
  43. Historical cost (GAAP assumption)
    assets are recorded at the amount paid for them (even if price increases/decreases)
  44. Materiality (GAAP Assumption)
    the impact that the transaction will have on a company's financial statements
  45. Monetary Unit Assumption
    that the dollar is a stable measure of value (no inflation)
  46. Entity Assumption (GAAP assumption)
    That the company is a separate entity from its owners
  47. Matching principle (GAAP assumption)
    expenses must be matched to the revenues that the help generate, and must be recorded in the same period in which revenues are recorded.
  48. Depreciation
    spreading out the cost of a capital asset over several years
  49. Straight-line depreciation
    Cost of an asset is spread out evenly throughout the expected life of the asset
  50. Salvage/Residual value
    The value that the asset is expected to have after the planned number of years of use
  51. Amortization
    • the process in which an intangible asset's cost is spread out over the asset's life
    • Usually, straight line method is used over the shorter between 1) asset's expected useful life, or 2) the assets legal life
    • Ex. A patent that is valid for 30 years
  52. Perpetual method of tracking inventory
    Keeping real-time information on inventory levels
  53. Periodic method of inventory
    • system in which inventory is counted at regular intervals
    • Beg. Invent. + Inv. Purchases - End. Invent. = Cost of Goods Sold
  54. First-in, first-out
    • assumption that the oldest units of inventory are always sold first
    • used in calculating Cost of Goods Sold
  55. Last-in, first-out
    • assumption that the newest units of inventory are always sold first
    • used in calculating Cost of Goods Sold
  56. Average cost method of calculating CoGS
    (Beg. Invent. + Purchases in dollars) / (Beg. Invent. + Purchases in units)