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Chapter 2 - Flashcards

Flashcard Deck Information

Class:COB 241 - FINANCIAL ACCOUNTING
Subject:College of Business
University:James Madison University
Term:Fall 2010
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Accounting Cycle For a given time-period, the cycle of recording accounting data, adjusting the accounts, preparing the financial statements, and closing the temporary accounts; when one accounting cycle ends, and a new one begins
Accounts Payable A liability account that represents the businesses' obligation to pay cash for operating expenses sometime in the future
Accounts Receivable Expected future cash receipts arising from permitting customers to buy now and pay later; typically relatively small balances due to within a short time period
Accrual ACcounting recognition of revenue or expense in a period before cash is exchanged
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Accrual Accounting Accounting system which recognizes revenues when earned and expenses when incurred regardless of when the related cash is exchanged
Accrued Expenses Expenses that are recognized before cash is payed. An example is accrued salaries expense
Adjusting Entry Entry that updates account balances prior to preparing financial statements; a bookkeeping tool. Adjusting entries never affect the cash account
American Institute of Certified Public Accountants National association that serves the educational and professional interests of members of the public accounting profession; membership is voluntary
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Asset Exchange Transaction A transaction, such as the purpose of land with cash, that decreases one asset and increases another asset; total assets remain unchanged
Asset Source Transaction A transaction that increases both an asset and a claim on assets; the three types of asset source transactions are acquisitions from owners (equity), borrowing from creditors (liabilities), or earnings from operations (revenues)
Asset Use Transaction A transaction that decreases both an asset and a claim on an assets; the three types of asset use transactions are distributions (transfers to owners), liability payments (to creditors), or expenses (costs incurred to operate the business)
Claims Exchange Transaction A transaction that decreases one claim and increases another claim; total claims remain unchanged. For example, accruing interest expense is a claims exchange transaction; liabilities increase, and the expense recognition decreases retained earnings
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Closing (the Books) Bookkeeping technique of transferring balances from the temporary accounts (revenue, expense, and dividends) to the permanent account (Retained earnings)
Code of Professional Conduct Guidelines established by the American Institute of Certified Public Accountants (AICPA) to promote ethical conduct among certified public accountants; AICPA members agree to adhere to this code, which goes beyond legal requirements
Conservatism A principle that guides accountants in uncertain circumstances to select the alternative that produces the lowest amount of net income
Cost An amount paid to acquire a resource (asset) or to pay for a resource that has been consumed. Incurring a cost results in an asset exchange or expense recognition
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Deferral Accounting recognition of revenue or expense in a period after cash or exchanged
Expense An economic sacrifice (decrease in assets or increase in liabilities) that is incurred in the process of generating revenue
Internal Controls Policies and procedures companies establish to provide reasonable assurance of reducing fraud, providing reliable accounting records, and accomplishing organization objectives
Matching Concept Accounting principle of recognizing expenses in the same accounting period as the revenues they produce, using one of three methods: match expenses directly with revenues (e.g. cost of goods sold); match expenses to the period in which they are incurred (e.g. rent expense); and match expenses systematically with revenues (e.g. depreciation expense)
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Opportunity An element of the fraud triangle that recognizes weaknesses in internal controls that enable the occurrence of fraudulent or unethical behavior
Period Costs Expenses recognized in the period in which they are incurred regardless of when cash payments for them are made; costs that cannot be directly traced to products
Permanent Accounts
Prepaid Items Definition
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Pressure Definition
Rationalization Definition
Realization Definition
Recognition Definition
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Revenue Definition
Salaries Payable Definition
Temporary Accounts Definition
Unearned Revenue Definition
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 Accounting CycleFor a given time-period, the cycle of recording accounting data, adjusting the accounts, preparing the financial statements, and closing the temporary accounts; when one accounting cycle ends, and a new one begins
 Accounts PayableA liability account that represents the businesses' obligation to pay cash for operating expenses sometime in the future
 Accounts ReceivableExpected future cash receipts arising from permitting customers to buy now and pay later; typically relatively small balances due to within a short time period
 AccrualACcounting recognition of revenue or expense in a period before cash is exchanged
 Accrual AccountingAccounting system which recognizes revenues when earned and expenses when incurred regardless of when the related cash is exchanged
 Accrued ExpensesExpenses that are recognized before cash is payed. An example is accrued salaries expense
 Adjusting EntryEntry that updates account balances prior to preparing financial statements; a bookkeeping tool. Adjusting entries never affect the cash account
 American Institute of Certified Public AccountantsNational association that serves the educational and professional interests of members of the public accounting profession; membership is voluntary
 Asset Exchange TransactionA transaction, such as the purpose of land with cash, that decreases one asset and increases another asset; total assets remain unchanged
 Asset Source TransactionA transaction that increases both an asset and a claim on assets; the three types of asset source transactions are acquisitions from owners (equity), borrowing from creditors (liabilities), or earnings from operations (revenues)
 Asset Use TransactionA transaction that decreases both an asset and a claim on an assets; the three types of asset use transactions are distributions (transfers to owners), liability payments (to creditors), or expenses (costs incurred to operate the business)
 Claims Exchange TransactionA transaction that decreases one claim and increases another claim; total claims remain unchanged. For example, accruing interest expense is a claims exchange transaction; liabilities increase, and the expense recognition decreases retained earnings
 Closing (the Books)Bookkeeping technique of transferring balances from the temporary accounts (revenue, expense, and dividends) to the permanent account (Retained earnings)
 Code of Professional ConductGuidelines established by the American Institute of Certified Public Accountants (AICPA) to promote ethical conduct among certified public accountants; AICPA members agree to adhere to this code, which goes beyond legal requirements
 ConservatismA principle that guides accountants in uncertain circumstances to select the alternative that produces the lowest amount of net income
 CostAn amount paid to acquire a resource (asset) or to pay for a resource that has been consumed. Incurring a cost results in an asset exchange or expense recognition
 DeferralAccounting recognition of revenue or expense in a period after cash or exchanged
 ExpenseAn economic sacrifice (decrease in assets or increase in liabilities) that is incurred in the process of generating revenue
 Internal ControlsPolicies and procedures companies establish to provide reasonable assurance of reducing fraud, providing reliable accounting records, and accomplishing organization objectives
 Matching ConceptAccounting principle of recognizing expenses in the same accounting period as the revenues they produce, using one of three methods: match expenses directly with revenues (e.g. cost of goods sold); match expenses to the period in which they are incurred (e.g. rent expense); and match expenses systematically with revenues (e.g. depreciation expense)
 OpportunityAn element of the fraud triangle that recognizes weaknesses in internal controls that enable the occurrence of fraudulent or unethical behavior
 Period CostsExpenses recognized in the period in which they are incurred regardless of when cash payments for them are made; costs that cannot be directly traced to products
 Permanent Accounts 
 Prepaid ItemsDefinition
 PressureDefinition
 RationalizationDefinition
 RealizationDefinition
 RecognitionDefinition
 RevenueDefinition
 Salaries PayableDefinition
 Temporary AccountsDefinition
 Unearned RevenueDefinition
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