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343 True/False questions

  1. Debit Inventory $75; Credit Purchases $75Adjust a periodic inventory at year end. Inventory account is $1,000, but should be $1,075.

          

  2. Sales x Est % = Uncollectible accounts expenseThe amount of an intangible asset used up during the period

          

  3. Depreciation conventionThe date on which the corporate board of directors declares a dividend

          

  4. No journal entry - make a notation that the par value is reduced to 1/4 the original valuePeriodic interest expense formula

          

  5. Trademarks and trade names (intangible assets)Special identifications that are protected against infringement

          

  6. PayeeThe person to whom a check is written

          

  7. Debit Prepaid Insurance $3,600; Credit Cash $3,600Journal entry: owner buys $150 of personal groceries

          

  8. ExpensedRecorded the cost as an expense

          

  9. Vertical journal entriesThe date on which the corporate board of directors declares a dividend

          

  10. MakerThe person who writes a check

          

  11. BondsRecognize revenues or expenses on the accounting books even though no cash changes hands

          

  12. Historical cost of an asset - asset's accumulated depreciationDays' sales in A/R formula

          

  13. Debit Note Receivable $1,000; Credit Sales Revenue $1,000Journal entry: accept a $1,000 note in payment for goods

          

  14. Cash dividendA share of the profits distributed to stockholders in the form of cash

          

  15. Purchases accountAccounts that get closed (brought to zero) at the end of each year. The temporary accounts are income, expenses, withdrawal, and dividends.

          

  16. Present value of a noteThe amount borrowed, or the PRINCIPAL. INTEREST-BEARING NOTES show the present value as the present amount.

          

  17. BondedThe check of business accounting records in order to give an opinion on whether the financial statements present the business fairly

          

  18. Declaration dateThe natural period of time before certain business activities tend to repeat - normally one year

          

  19. Nearest-year depreciation conventionAssume all assets purchased within the first 6 months of the fiscal year are purchased on the first day of the year. Assume all assets purchased within the last 6 months of the fiscal year are purchased on the first day of the following year.

          

  20. Expensedmoney that is spent and gone; The opposite of "capitalized."

          

  21. Statement of owner's equityThe exclusive right to produce and sell an invention

          

  22. Contra-asset accountAn account that gets subtracted from an asset account

          

  23. Debit Land Improvements $7,000; Credit Cash $7,000Journal entry: buy a $7,000 machine with cash

          

  24. Debit Interest Expense $500; Credit Interest Payable $500Journal entry: accrue $500 of interest owed on a loan

          

  25. Modified Accelerated Cost Recovery SystemA depreciation method that results in higher depreciation expense in an asset's early years

          

  26. Debit Warranties Expense $6,000; Credit Warranties Payable $6,000Journal entry: Estimate cost of warranties - $6,000

          

  27. Discontinued operationsNon-operating expenses or revenues come from transactions that are not part of normal business operations

          

  28. Face rateThe person who borrows money and writes a note promising to pay in the future

          

  29. Debit Inventory $100; Credit Cash $100Journal entry: Earn $4,000 of cash income from sales

          

  30. AuditThe check of business accounting records in order to give an opinion on whether the financial statements present the business fairly

          

  31. Bond book valueThe future value of a note

          

  32. Outstanding sharesThe number of issued shares of a corporation less any treasury stock repurchased

          

  33. Fully depreciatedThe individual owner (without partners) of an unincorporated business

          

  34. Non-operatingNon-operating expenses or revenues come from transactions that are not part of normal business operations

          

  35. BenchmarkingEnd-of-year posting to bring the temporary accounts to zero and transfer their balances into the owner's equity account

          

  36. Income statementThe financial report that shows the result of business operations over a period of time

          

  37. Periodic cash paymentsThe inventory method that keeps track of merchandise costs in various purchases and contra-purchases accounts and then computes cost of goods sold on the income statement. Inventory on the books is adjusted only at year-end.

          

  38. Amount investors pay for bond / face amount of bondQuoted price of a bond

          

  39. Amortization expenseThe date on which the corporate board of directors declares a dividend

          

  40. Objectivity PrincipleThe accounting principle that requires business transactions to be recorded using the best objective evidence

          

  41. Interest payableThe account that reflects interest accrued on business debts

          

  42. Materiality PrincipleThe accounting principle that says that businesses should pay for more accurate information only if the information is useful for making business decisions

          

  43. InventoryA supply of items a business has on hand

          

  44. IncorporateTo become a corporation

          

  45. Operating cycleThe natural period of time before certain business activities tend to repeat - normally one year

          

  46. Debit Dividend $3,000; Credit Dividend Payable $3,000Journal entry: corporation DECLARES a $3,000 dividend

          

  47. Going-Concern PrincipleThe accounting principle that requires assets to be reported on balance sheets at their historical cost

          

  48. Consistency PrincipleBusinesses should use the same accounting system from period to period. For example, there is no switching back and forth from LIFO to FIFO.

          

  49. Debit Interest Receivable $400; Credit Interest Revenue $400Journal entry: Accrue $400 of interest on a note

          

  50. Cost of goods sold / total sales; or 100% - Gross Profit PercentCost of goods sold percent formula

          

  51. Beginning-of-year depreciation conventionAssume all assets purchased during the year were purchased on the first day of the year

          

  52. Debit Depletion Expense $10,000; Credit Accumulated Depreciation $10,000Journal entry: Deplete mineral rights $10,000

          

  53. CreditThe loan amount that remains unpaid

          

  54. Assets - LiabilitiesThose debts that must be paid within one year or one operating cycle, whichever is longer

          

  55. General journalThe book or computer subroutine that can be used to record any type of accounting entry

          

  56. Partnership profit-splitting planThe accounting principle that requires business transactions to be recorded using the best objective evidence

          

  57. Depreciable costmoney owed

          

  58. AccountA sale for which payment is to be made later

          

  59. AICPAThe check of business accounting records in order to give an opinion on whether the financial statements present the business fairly

          

  60. Issued sharesOutsiders to whom the company owes money

          

  61. Average Net A/R / One day's salesDays' sales in A/R formula

          

  62. MaterialInformation significant enough to affect decision making

          

  63. Debit Car $2,000; Credit Cash $100 and Loans Payable $1,900Journal entry: Buy a $2,000 car on time with a $100 cash down payment

          

  64. Liabilities + Owner's equityAssets =

          

  65. Specific unitA sale for which payment is to be made later

          

  66. Trading investmentsShort-term investments for which the purpose is to resell them for a profit

          

  67. Fixed assetsAssets that are expected to last longer than one year. Also called PLANT ASSETS.

          

  68. Periodic inventory methodThe inventory method that keeps track of merchandise costs in various purchases and contra-purchases accounts and then computes cost of goods sold on the income statement. Inventory on the books is adjusted only at year-end.

          

  69. Amount Received - Book Value given upThese are assumptions about the purchase dates of fixed assets in order to simplify the depreciation process

          

  70. Total equity OVER total assetsEquity ratio =

          

  71. Present Value PrincipleFinancial assets are shown on the balance sheet at their present value. When given a non-interest-bearing note (which has interest in the face amount), GAAP requires that the interest be backed out.

          

  72. Cost of goods sold / average inventoryFormula for gross profit

          

  73. Debit Amortization Expense $500; Credit Patent $500Journal entry: Amortize a patent $500

          

  74. Debit Short-Term Investment $1,000; Credit Cash $1,000Journal entry: Spend $700 to make new equipment operational

          

  75. LIFOFirst-in, first-out. The inventory system that assumes the oldest items in inventory are the first ones sold.

          

  76. Debit Cash $1,000; Credit Equity (Partner B) $1,000Journal entry: purchase $1,000 shares of no par stock for $1,000

          

  77. OperationsWhat a business normally does to make money

          

  78. Mid-month depreciation conventionAssume all assets are purchased on the 15th of the month

          

  79. Gross profit / total salesThe cost to the business of the goods that it sells

          

  80. Debit various expense accounts (from receipts); Credit CashJournal entry: reimburse petty cash

          

  81. Discount a NoteTo sell a note to a bank that subtracts a DISCOUNT, giving the seller the PROCEEDS

          

  82. Generally accepted accounting principles (GAAP)The company's income and expenses associated with that income should be matched with each other and reported in the same period

          

  83. Interest-bearing noteThe dates (usually semiannual or quarterly) each year on which the borrowing corporation promises to make the periodic cash payments

          

  84. Debit Bad Debt Expense $1,000; Credit Accounts Receivable $1,000Journal entry: write off $1,000 bad debt (direct write-off method)

          

  85. 100% - equity ratioThe method of splitting partnership profits after making guaranteed payments

          

  86. CapitalizedRecorded the cost as an asset

          

  87. Total quick assets / total current liabilitiesQuick ratio formula

          

  88. Deposit not shownThe natural period of time before certain business activities tend to repeat - normally one year

          

  89. Debit Cash $4,000; Credit Sales $4,000Journal entry: Earn $4,000 of cash income from sales

          

  90. General ledgerThe book or computer subroutine that contains all the individual accounts

          

  91. Post-closing trial balanceThe company's income and expenses associated with that income should be matched with each other and reported in the same period

          

  92. Debit Travel Expense $50; Credit Car Expense $50Journal entry: Amortize a patent $500

          

  93. Debit Short-Term Investments $300; Credit Unrealized Gain in ST Investments $300Journal entry: reflect that short-term investments have gone up $300

          

  94. Cash basis accountingThe skill of producing financial statements from business transactions

          

  95. Extraordinary gains and lossesThose which are both unusual and infrequent

          

  96. CapitalizedWhen money is changed into another asset that helps the business make money

          

  97. Interest payment datesThe dates (usually semiannual or quarterly) each year on which the borrowing corporation promises to make the periodic cash payments

          

  98. Net incomeWhen numbers are "netted," they combine so that the negative numbers get subtracted from the positive numbers

          

  99. Adjusting entryEntries made on the first day of a new period that switch the debits and credits of the adjusting entries made on the last day of the previous period

          

  100. WithdrawalRecognize revenues or expenses on the accounting books even though no cash changes hands

          

  101. Net Sales on Account / 365 daysOne day's sales formula

          

  102. Debit Cash $1,070; Credit Note Receivable $1,000 and Interest Revenue $70Journal entry: Employer loans $100 to employee

          

  103. Cash from operations + cash from investing activities + cash from financing activities = total change in cash... total change in cash + cash (beginning of period) = cash (end of period)A single number on an income statement, net of tax, which shows the total effect of a change in accounting method as if the method had been used since day one of the business

          

  104. Other comprehensive incomeTwo final types of income shown at the bottom of an income statement. Rather than be closed out into retained income, these two types of income have their own cumulative equity accounts. They are: foreign currency adjustments; and unrealized gains on available-for-sale investments.

          

  105. Stock dividendA distribution of a small amount of stock proportionally to all stockholders

          

  106. 365 / Inventory TurnoverDays in inventory formula

          

  107. Accrual basis accountingThe system in which income is recognized when earned and expenses are recognized when incurred

          

  108. PostingThe process of taking amounts from recorded business transactions and placing those amounts as debits or credits in the various accounts

          

  109. Disclosure PrincipleThe accounting principle that requires business transactions to be recorded using the best objective evidence

          

  110. Credit Cash $1,000; Debit Equipment $2,000; Credit Common Stock (1000 sh x 50 cents par) $500 and Additional Paid-In Capital $2,500Journal entry: purchase 1,000 shares of 50 cents par stock for $1,000 cash and $2,000 of equipment

          

  111. Subsidiary recordA separate record containing the details of a control account. Example: the accounts receivable subsidiary record lists all who owe the company money, the total of which is reflected in accounts receivable.

          

  112. Date of recordUsually a week or two after the declaration date. Whoever owns corporate stock on the date of record gets the dividend.

          

  113. InvestmentsUses of money to buy assets that make more money. Long-term investments are in assets such as buildings and equipment. Short-term investments are in assets such as certificates of deposit or stock.

          

  114. Purchases returns and allowancesA contra-purchases account used under the periodic inventory method to keep track of refunds a business gets for returning merchandise to vendors, or reductions in price (allowances) the vendor offers to resolve complaints

          

  115. Lower of Cost or Market (LCM) PrincipleAn account that gets subtracted from an asset account

          

  116. Cash flow statementThe business financial statement that shows where the cash came from and where it went during the period. It has four major sections.
    - Cash flow from operations
    - Cash flow from investing activities
    - Cash flow from financing activities
    - A calculation of (1) net cash flow, and (2) cash - end of period.

          

  117. PremiumThe amount that lenders pay for a bond in excess of the face amount

          

  118. Loan amortization scheduleMaximum shares that a corporation may legally issue

          

  119. Debit Utilities Expense $290; Credit Accounts Payable $290Journal entry: get a $290 invoice for utilities

          

  120. Future value of a noteThe amount borrowed plus the interest up to the maturity date

          

  121. Debit Cash $100; Credit Dividend Revenue $100Journal entry: accept a $1,000 note in payment for goods

          

  122. Conservative PrincipleForbids businesses to change accounting METHODS from year to year

          

  123. Direct write-off methodThe date on which the corporate board of directors declares a dividend

          

  124. Face amount of bond + Premium (or minus discount)Assume all assets are purchased on the first day of the 7th month of the fiscal year

          

  125. Other gains and lossesSister accounts that have a normal balance the opposite of their brother account. Contra accounts are reported under their brother account and have the effect of lowering the brother account.

          

  126. Fully amortizedAssets quickly changeable into cash: cash, short-term investments, and net accounts receivable

          

  127. Face amountA sale for which payment is to be made later

          

  128. FIFOAmerican Institute of Certified Public Accountants. Accounting's professional organization that issues the code of ethics for accountants.

          

  129. (Beginning Inventory + Ending Inventory) / 2Average net accounts receivable (A/R) formula

          

  130. Debit Cash $500; Credit Sales $500; Debit Cost of Goods Sold $300; Credit Inventory $300Journal entry: record $100 collected on account

          

  131. Debit Petty Cash $100; Credit Cash $100Journal entry: Spend $700 to make new equipment operational

          

  132. EthicsStandards that define how to act in business situations

          

  133. Debit Loans Payable $500 and Interest Expense $35; Credit Cash $535Journal entry: pay loan payment of $535, of which $35 is interest

          

  134. Stated valueAn accounting value, the equivalent to par value, given to stock with no par value written on the stock certificate

          

  135. Reversing entriesAccounts that explain why assets went down from operations

          

  136. FinancingThe process of finding money for the business from sources other than normal operations

          

  137. Par valueA dollar amount written on a stock certificate

          

  138. Mid-year depreciation conventionAssume all assets are purchased on the 15th of the month

          

  139. Debit Treasury Stock (contra-equity account) $1,000; Credit Cash $1,000Journal entry: buy a $7,000 machine with cash

          

  140. Deferred credit or deferred revenueA section of the liability section of the balance sheet. These liabilities result from receiving cash before earning it.

          

  141. BondholderAn employee is bonded when an insurance company has issued a policy saying it will pay the employer should the employee ever steal

          

  142. Preferred stockStock in a corporation with certain special privileges

          

  143. Purchases discount accountA contra-purchases account used under the periodic inventory method to keep track of discounts granted by vendors for paying early

          

  144. Current liabilitiesDebts that must be paid within one year or one operating cycle, whichever is longer

          

  145. Debit Purchases $100; Credit Cash $98 and Purchases Discount $2Journal entry: receive a $100 dividend on a stock

          

  146. Book Value + Gain (Loss)Cash received on sale of asset

          

  147. Intangible assetsAssets quickly changeable into cash: cash, short-term investments, and net accounts receivable

          

  148. Balance sheetA summary of financial balances as of a particular day.

          

  149. Market interest rateThe rate that most lenders can immediately get for their money

          

  150. Debit Loan Receivable $100; Credit Cash $100Journal entry: Employer loans $100 to employee

          

  151. PrincipalAmerican Institute of Certified Public Accountants. Accounting's professional organization that issues the code of ethics for accountants.

          

  152. Cost of goods soldAssets that are available to spend within a year

          

  153. Change-in-Accounting-Estimates PrincipleThe accounting principle that requires a reporting of the current and non-current portions of all debt. Where the current portion cannot easily be estimated, this principle requires reporting the entire debt as current.

          

  154. Sharing ratioThe method of splitting partnership profits after making guaranteed payments

          

  155. Balanced booksCertificates that corporations (and governments) issue to borrow large amounts of money from a large number of people. The certificates call for periodic cash payments each year with a lump sum payment on the maturity date.

          

  156. Short-term investmentsInvestments that the business plans to resell within one year. Also called "investments in marketable securities."

          

  157. Ratio analysisUsed when a company computes a ratio from various numbers on the financial statements in order to analyze results

          

  158. Stable Monetary Unit PrincipleThe accounting principle that says that businesses should pay for more accurate information only if the information is useful for making business decisions

          

  159. Total liabilities OVER total assetsThose which are both unusual and infrequent

          

  160. Franchises and licenses (intangible assets)A contra-purchases account used under the periodic inventory method to keep track of refunds a business gets for returning merchandise to vendors, or reductions in price (allowances) the vendor offers to resolve complaints

          

  161. Debit Interest Expense $9,000 and Premium on Bond Payable $1,000; Credit Cash $10,000Journal entry: Spend $50,000 on research and development of a new drug

          

  162. Debit Accounts Payable $290; Credit Cash $290Journal entry: pay a $290 bill in our accounts payable

          

  163. New Life PrincipleIf any work on an asset extends the life of that asset, the cost of that work should be capitalized

          

  164. Purchases - Purchase Discounts - Purchase Returns and Allowances + Freight-inA contra-purchases account used under the periodic inventory method to keep track of discounts granted by vendors for paying early

          

  165. T-accountRecognize revenues or expenses on the accounting books even though no cash changes hands

          

  166. Maturity dateThe person who writes a check

          

  167. PrepaidsThe right side of T-accounts. Credits increase liabilities and equity and income accounts, but decrease assets.

          

  168. Treasury stockA corporation's investment in its own stock

          

  169. Debit Interest Expense $11,000; Credit Discount on Bond Payable $1,000 and Cash $10,000Bond periodic cash payment of $10,000 with an interest expense of $11,000

          

  170. AuditorsCertified public accountants who audit accounting records

          

  171. PrincipalThe amount that lenders pay for a bond in excess of the face amount

          

  172. Travel expenseAll accounts normally keep balances that are either debits or credits

          

  173. Stock certificateA distribution of a small amount of stock proportionally to all stockholders

          

  174. Depreciation expenseThe amount of long-lived assets used up during operations

          

  175. Debit Warranties Payable $3,000; Credit Cash $3,000Journal entry: pay $1,000 of wages accrued last period

          

  176. Straight-line depreciationThe right to buy a portion of each new issuance of stock in order to maintain the same ownership percentage

          

  177. Contra-liability accountThose debts that must be paid within one year or one operating cycle, whichever is longer

          

  178. Sell a $1,000 machine with $300 A/D for $500Journal entry: Buy merchandise for resale, periodic method

          

  179. Sales - Cost of goods sold = Gross profitFormula for gross profit

          

  180. Non-interest bearing noteThe equity account in a corporation that contains all the earnings the corporation has ever earned but not yet distributed to shareholders

          

  181. Units of production methodThe usual method of computing cash flow from operations. It starts with net income and uses the CHANGES in the asset and liability accounts to adjust net income into cash flow from operations.

          

  182. Closely held corporationA corporation with few (usually less than 10) stockholders

          

  183. IncomeAccounts that explain why assets went up from operations

          

  184. Copyrights (intangible asset)[_BLANK_], also called the basis for depreciation, is the amount of cost that can be depreciated on an asset over time. The [_BLANK_] is calculated by subtracting the salvage value of an asset from its cost.

          

  185. HeadingAssets that represent expenses paid in advance that provide future benefits to the business

          

  186. Clear the bankRecorded the cost as an asset

          

  187. Depreciation scheduleA list of all fixed assets in the company, their purchase dates, their depreciation methods, and their depreciation each year

          

  188. Beginning Inventory + Net Purchases = Goods Available for Sale (GAS); GAS - Ending Inventory = Cost of Goods SoldAverage net accounts receivable (A/R) formula

          

  189. Horizontal analysisUsed when a company compares its current results with those from a previous year

          

  190. Wages payableThe account that reflects wages earned as of the end of the period but not yet paid

          

  191. Salvage valueThe estimated amount received for an asset at the end of its useful life. Also called RESIDUAL VALUE and SCRAP VALUE.

          

  192. Accelerated depreciation methodThe contra-asset account that accumulates all the depreciation of long-lived assets over the years

          

  193. Fiscal yearAn income account that explains the increase in business assets as a result of selling goods.

          

  194. Debit Supplies Expense $100; Credit Cash $100Adjust a periodic inventory at year end. Inventory account is $1,000, but should be $1,075.

          

  195. Warranties payableAn account that shows the estimated amount owed on the warranties a business offers

          

  196. Amortization scheduleA schedule showing the principal, interest, and remaining balance for each payment on a loan

          

  197. Nearest-month depreciation convention(Historical cost - salvage value) / estimated life = depreciation for all years

          

  198. Preemptive rightInformation significant enough to affect decision making

          

  199. Income summaryNet Income =

          

  200. Debit Depreciation Expense $1,500; Credit Accumulated Depreciation (Car) $1,500Journal entry: Record $1,500 of car depreciation

          

  201. Authorized sharesThe method of splitting partnership profits after making guaranteed payments

          

  202. Debit Allowance for Uncollectible Accounts $1,000; Credit Accounts Receivable $1,000Journal entry: write off $1,000 bad debt (allowance method)

          

  203. Maturity valueAn accounting value, the equivalent to par value, given to stock with no par value written on the stock certificate

          

  204. Current assetsAssets that are available to spend within a year

          

  205. Debit Depreciation Expense $4,000; Credit Accumulated Depreciation - Building $3,000 and Accumulated Depreciation - Equipment $1,000Journal entry: Deplete mineral rights $10,000

          

  206. Debit Wages Payable $1,000; Credit Cash $1,000Journal entry: pay $1,000 of wages accrued last period

          

  207. Debit Dividend Payable $3,000; Credit Cash $3,000Journal entry: corporation pays a $3,000 dividend

          

  208. Depletion expenseAn expense account for small expenses that are not important enough to have their own account

          

  209. Retained earningsEntries made on the first day of a new period that switch the debits and credits of the adjusting entries made on the last day of the previous period

          

  210. Business entityThe financial statements report about a single business. Every business gets its own set of books. Accountants do not mix in the owner's personal financial information.

          

  211. Operating revenue - operating expensesOperating net income or operating income formula

          

  212. Matching PrincipleThe company's income and expenses associated with that income should be matched with each other and reported in the same period

          

  213. Accumulated depreciation(Historical cost - salvage value) / estimated life = depreciation for all years

          

  214. A/R x Est % = What Allowance Should Be - What Allowance Is = AdjustmentPercentage of accounts receivable formula

          

  215. Debit Cash $1,000; Credit Loans Payable $1,000Journal entry: Borrow $1,000

          

  216. Assets - Owner's equityGross profit formula

          

  217. Managerial accountingThe skill of providing financial information to run a large business

          

  218. Patents (intangible asset)The exclusive right to publish, perform, or reproduce music, art, film, books or software

          

  219. Debit Uncollectible Accounts Expense $2,000; Credit Allowance for Uncollectible Accounts $2,000Journal entry: Estimate cost of warranties - $6,000

          

  220. No entry requiredA company with plenty of cash that buys an entire offering of bonds with the hope of reselling them for a profit

          

  221. Face (of a bond)Certificates that corporations (and governments) issue to borrow large amounts of money from a large number of people. The certificates call for periodic cash payments each year with a lump sum payment on the maturity date.

          

  222. MakerThe person who borrows money and writes a note promising to pay in the future

          

  223. Income - ExpensesNet Income =

          

  224. Liabilitiesmoney owed

          

  225. Debit Insurance Expense $100; Credit Prepaid Insurance $100Journal entry: use up $100 of prepaid insurance

          

  226. OutstandingA check is outstanding when it has not yet cleared the bank

          

  227. Debit Uncollectible Accounts Expense $200; Credit Allowances for Uncollectible Accounts $200Journal entry: adjust allowance to be $1,000 when it is $800

          

  228. Financial Accounting Standards Board (FASB)The extra cost a business pays for another business for being unusually profitable

          

  229. Debit Supplies Inventory $100; Credit Cash $100Journal entry: buy $100 merchandise for resale, perpetual method

          

  230. Quick assetsAssets quickly changeable into cash: cash, short-term investments, and net accounts receivable

          

  231. Cost of goods soldSister accounts that have a normal balance the opposite of their brother account. Contra accounts are reported under their brother account and have the effect of lowering the brother account.

          

  232. Future Value - DiscountThe amount borrowed plus the interest up to the maturity date

          

  233. Debit Withdrawal $150; Credit Cash $150Journal entry: owner buys $150 of personal groceries

          

  234. Contra accountsSister accounts that have a normal balance the opposite of their brother account. Contra accounts are reported under their brother account and have the effect of lowering the brother account.

          

  235. Vertical analysisUsed when a company compares all the numbers of a financial report with a key number from the report

          

  236. Certified public accountants (CPAs)One day's sales formula

          

  237. Debit Research and Development Expense $50,000; Credit Cash $50,000Journal entry: Spend $50,000 on research and development of a new drug

          

  238. Financial accounting[_BLANK_], also called the basis for depreciation, is the amount of cost that can be depreciated on an asset over time. The [_BLANK_] is calculated by subtracting the salvage value of an asset from its cost.

          

  239. Debit Balloon Inventory $500; Credit Balloon Expense $500Journal entry: buy $100 merchandise for resale, perpetual method

          

  240. Consumption method for suppliesA schedule showing the principal, interest, and remaining balance for each payment on a loan

          

  241. Consistency PrincipleThe accounting principle that requires accountants to resolve financial statement uncertainty in the least favorable way

          

  242. CapitalAssets that help a business or a person make money

          

  243. Dividend% x par value of 1 share = $Dividend/share; Dividend% x CS (or PS) = Total CS (or PS) dividendPercentage of sales formula

          

  244. Liquiddescribes how quickly something can be changed into cash

          

  245. UnderwriterWhen numbers are "netted," they combine so that the negative numbers get subtracted from the positive numbers

          

  246. DiscountA sale for which payment is to be made later

          

  247. Marketable securities[_BLANK_], also called the basis for depreciation, is the amount of cost that can be depreciated on an asset over time. The [_BLANK_] is calculated by subtracting the salvage value of an asset from its cost.

          

  248. Double declining balance depreciationBook value at beginning of year x 2 / estimated life = depreciation expense for year until book value reaches salvage value

          

  249. CreditorsThe amount that lenders pay for a bond in excess of the face amount

          

  250. WarrantyThe right side of T-accounts. Credits increase liabilities and equity and income accounts, but decrease assets.

          

  251. Transportation expenseThe cost of business airplane fares, trains, and long-distance buses

          

  252. Weighted averageThe number shown represents income or loss after a reduction for income taxes

          

  253. Debit Cash $50; Credit Purchase Returns and Allowances $50Journal entry: Discount a $1,000 note at the bank for $1,070

          

  254. Perpetual inventory methodThe inventory method that increases the inventory account with every purchase and lowers the inventory account with every sale.

          

  255. Face amountThe amount written on the face of a bond that represents the lump sum payment the borrowing corporation promises to pay on the maturity date

          

  256. Continuing operationsIncome from normal operations that are expected to continue in the coming years. Normal operations + Gains and losses from sale of business assets or investments.

          

  257. Proceeds of a noteThe amount a bank gives in exchange for a note

          

  258. Goodwill (intangible asset)The extra cost a business pays for another business for being unusually profitable

          

  259. Debit Accounts Receivable $100; Credit Sales Revenue $100Journal entry: record $100 of sales on account

          

  260. Equity (beginning) + Net Income - Withdrawal = Equity (ending)Ending owner's equity formula

          

  261. ClosingEnd-of-year posting to bring the temporary accounts to zero and transfer their balances into the owner's equity account

          

  262. Petty cash systemA system for making small payments with cash

          

  263. Guaranteed payment(When "Where did it go?" equals "Where did it come from?" or) when a company's assets equal the sum of its liabilities plus owner's equity

          

  264. ExpensesAccounts that explain why assets went down from operations

          

  265. No-par stockCorporate shares with no dollar amount written on the stock certificate

          

  266. Debit Cash $900 and Realized Loss on Sale of Stock $100; Credit Short-Term Investment $1,000Journal entry: buy $1,000 of short-term investments

          

  267. MACRS depreciationHistorical cost x IRS decimal = depreciation for year

          

  268. NetA word that means a subtraction has occurred

          

  269. Current assets OVER current liabilitiesThe accounting principle that requires a reporting of the current and non-current portions of all debt. Where the current portion cannot easily be estimated, this principle requires reporting the entire debt as current.

          

  270. Internal controlsThe book or computer subroutine that can be used to record any type of accounting entry

          

  271. Debit Cash $1,100; Credit Note Receivable $1000, Interest Receivable $60, and Interest Revenue $40Journal entry: record $100 collected on account

          

  272. Research and DevelopmentThe cost a company pays to create and develop a product. It is never an intangible asset, but instead is expensed each year.

          

  273. Sales - Cost of goods soldGross profit formula

          

  274. (Beginning Net A/R + Ending Net A/R) / 2Days' sales in A/R formula

          

  275. Debit Cash $1,000; Credit Common Stock $1,000Journal entry: corporation DECLARES a $3,000 dividend

          

  276. Miscellaneous expenseAn expense account for small expenses that are not important enough to have their own account

          

  277. Contra-purchases accountAn account that is subtracted from Purchases to compute Net Purchases. Examples: PURCHASES DISCOUNT and PURCHASES RETURNS AND ALLOWANCES.

          

  278. On accountA sale for which payment is to be made later

          

  279. Plant assetsPlant assets are assets that have a life longer than one year

          

  280. Specialized journalA book or computer subroutine that is designed for quick input of a frequent type of business transaction

          

  281. Indirect methodBusiness procedures that make it difficult to get away with wrong behavior

          

  282. Book value of the bond TIMES market rate TIMES fraction of yearThe company must report inventories at cost or the current market price, whichever is lower

          

  283. Temporary accountsA sale for which payment is to be made later

          

  284. Percentage analysisA financial statement analysis technique in which one number is assigned as 100% and all other numbers are expressed as a percentage of the first number. In balance sheets, the key number is total assets. In income statements, the key number is sales.

          

  285. 100% - Debt ratioAnother way to determine equity ratio

          

  286. Debit Cash $100; Credit Accounts Receivable $100Journal entry: record $100 collected on account

          

  287. Double entry accountingRecording business transactions twice: once to show where the money came from, and another time to show where the money went

          

  288. Unrealized gain/lossA gain or loss that happens when an asset is sold

          

  289. Debit Purchases $100; Credit Cash $100Journal entry: Employer loans $100 to employee

          

  290. Cumulative effect of a change in accounting methodA single number on an income statement, net of tax, which shows the total effect of a change in accounting method as if the method had been used since day one of the business

          

  291. Debit Cash $9,000 ($10,000 x 90%) and Discount on Bonds Payable $1,000; Credit Bonds Payable $10,000Bond periodic cash payment of $10,000 with an interest expense of $11,000

          

  292. NettedRecognize revenues or expenses on the accounting books even though no cash changes hands

          

  293. Chart of accountsA sale for which payment is to be made later

          

  294. $/share x # of shares = total dividendDollar per share dividend calculation

          

  295. Interim financial statementsThe dates (usually semiannual or quarterly) each year on which the borrowing corporation promises to make the periodic cash payments

          

  296. Direct methodThe method of calculating cash flow from operations that does not start with net income, but does show cash-in and cash-out categories

          

  297. Debit Cash $2,000; Credit Treasury Stock $1,000 and Additional Paid-In Capital $1,000Journal entry: corporation sells $1,000 of treasury stock for $2,000

          

  298. Face interestThe interest rate written on the face of a note

          

  299. Future value of the note x Discount % x Years (or fraction thereof) = DiscountDiscount on a note formula

          

  300. Sales - Cost of goods sold = Gross profit, then Gross Profit - Expenses = Net incomeCost of goods sold percent formula

          

  301. All-Costs-to-Get-Operating PrincipleThe accounting principle that requires accountants to resolve financial statement uncertainty in the least favorable way

          

  302. Owner's equityAn account that gets subtracted from its related account. These accounts always get reported as negative numbers

          

  303. Debit Machines $7,000; Credit Cash $7,000Journal entry: Put in a $4,000 driveway and $3,000 fence

          

  304. Debit Cash $100; Credit Owner's Equity $100Journal entry: Earn $4,000 of cash income from sales

          

  305. Debit Cash $24,000; Credit Deferred Rent Revenue (Current) $6,000 and Deferred Rent Revenue (Long-Term) $18,000Journal entry: receive $24,000 in advance for 4 years of rent

          

  306. SalesThe left side of T-accounts. Debits increase assets, withdrawal and expense accounts, but decrease liabilities and equity.

          

  307. Purchase method for suppliesThe method of accounting for operating supplies that recognizes supplies as an expense when they are purchased.

          

  308. Debit Balloon Expense $500; Credit Balloon Inventory $500Journal entry: Adjust balloon inventory to make it $500 smaller

          

  309. Debits = Credits. Always!!!Debit and credit formula

          

  310. Direct labor + direct materials + overheadThe method that recognizes bad-debt expenses in the period the business writes off the accounts receivable. Not GAAP.

          

  311. Current assetsThe number of shares of a corporation that the corporation has issued to investors

          

  312. Sole proprietorThe individual owner (without partners) of an unincorporated business

          

  313. Control accountAn artificial "person" created by the laws of a state that has the right to do business

          

  314. Debit Additional Paid-In Capital $1,000 (100 x $10); Credit Common Stock $1,000Journal entry: purchase $100 supplies, consumption method

          

  315. Current liabilitiesUsed when a company compares all the numbers of a financial report with a key number from the report

          

  316. Net of taxThe number shown represents income or loss after a reduction for income taxes

          

  317. Current Portion PrincipleThe accounting principle that requires that financial statements be based on the assumption that the business will last indefinitely

          

  318. Stock splitA large distribution (2-for-1 or larger) of new stock in which stockholders turn in old certificates and receive new stock certificates

          

  319. Write-offThe amount borrowed; this is the non-interest portion paid back when making loan payments

          

  320. Debit Accounts Receivable $1,100; Credit Interest Receivable $100 and Note Receivable $1,000Journal entry: Record customer default on $1,000 note held to maturity. $100 of interest had been accrued.

          

  321. AssetThe person who writes a check

          

  322. Trial balanceA listing of all accounts with their balances. Debit balances go in the debit column; credit balances go in the credit column. The debit column must equal the credit column for the books to be in balance.

          

  323. Face amount of bond x Face rate of bond x Fraction of yearInventory turnover formula

          

  324. CorporationAssets that represent expenses paid in advance that provide future benefits to the business

          

  325. Realized gain/lossAll financial statements have a standard 3-line heading as follows:

    Name of the Company
    Name of the Report
    Date (balance sheet) or Period of Time (all other statements)

          

  326. AccrueAmerican Institute of Certified Public Accountants. Accounting's professional organization that issues the code of ethics for accountants.

          

  327. Debit Equipment $700; Credit Cash $700Journal entry: Put in a $4,000 driveway and $3,000 fence

          

  328. Historical Cost PrincipleFinancial assets are shown on the balance sheet at their present value. When given a non-interest-bearing note (which has interest in the face amount), GAAP requires that the interest be backed out.

          

  329. Debit Wages Expense $1,000; Credit Wages Payable $1,000Journal entry: accrue $500 of interest owed on a loan

          

  330. Loan amount (or PRINCIPAL) x Rate % x Years (or fraction thereof) = InterestInterest formula

          

  331. Debit Deferred Rent Revenue $10,000; Credit Rent Revenue $10,000Journal entry: record $100 of sales on account

          

  332. Percentage of accounts receivable methodA financial statement analysis technique in which one number is assigned as 100% and all other numbers are expressed as a percentage of the first number. In balance sheets, the key number is total assets. In income statements, the key number is sales.

          

  333. Contra accountThe book or computer subroutine that can be used to record any type of accounting entry

          

  334. Purchase price - Accumulated deprecation = Book valueFormula for book value of a long-lived asset

          

  335. Debit Repair Expense $50, Accumulated Depreciation $600, and Machines $400; Credit Cash $1,050Journal entry: Spent $50 on repairs and $1,000 to extend life of Machine A, with $600 in accumulated depreciation

          

  336. Sell a $1,000 machine with $300 A/D for $800Debit Cash $800 and Accumulated Depreciation $300; Credit Machine $1,000 and Gain on sale of machine $100

          

  337. Common stockThe type of stock that represents the basic ownership of a corporation

          

  338. Percentage of sales methodThe method of estimating uncollectible accounts expense

          

  339. Debit Income Accounts $10,000; Credit Expense Accounts $6,000 and Income Summary $4,000Journal entry: Close out $10,000 of income and $6,000 of expense accounts

          

  340. DebitOutsiders to whom the company owes money

          

  341. Debit Cash $11,000 ($10,000 x 110%); Credit Premium on Bonds Payable $1,000 and Bonds Payable $10,000Journal entry: issue $10,000 of bonds at a price of 110

          

  342. Normal balanceThe account that reflects interest accrued on business debts

          

  343. Operating revenueThe method of splitting partnership profits after making guaranteed payments