Financial Accounting Chapter 4

Reports revenues and expenses and calculates net income or net loss for the time period

Shows how retained earnings changed during the period due to net income (or net loss) and dividends

Reports assets, liabilities, and stockholders' equity as of the LAST DAY of the period

A balance sheet that places each asset and each liability into a specific category

An asset that is expected to be converted to cash, sold, or used up during the next 12 months, or within the business's normal operating cycle

The time span when cash is used to acquire goods and services, the goods and services are sold to customers, then the business collects the cash from customers

An asset that will not be converted to cash or used up within the business's operating cycle or one year, whichever is greater

Long-term investments, plant assets, and intangible assets

Investments in bonds or stocks in which the company intends to hold the investment for longer than one year

Long-lived, tangible asset, such as land, buildings, and equipment, used in the operation of a business

Land, building, furniture, and equipment

Fixed assets OR property, plant, and equipment

In order of liquidity

An asset with no physical form that is valuable because of the special rights it carries

Patents, copyrights, and trademarks

A liability that must be paid with cash or with goods and services within one year or within the business's operating cycle

Accounts payable, notes payable (due within one year), salaries payable, interest payable, and unearned revenue

By the order that they are due

A liability that does not need to be paid within one year or within the business's operating cycle

Notes payable

Represents the stockholders' claims to the assets of the business

ONLY revenue and expense accounts

The adjusted trial balance section

Assets, liabilities, and equity accounts EXCEPT revenue and expense accounts

Total revenues - total expenses

When expenses exceed revenues

Journalizing and posting the closing entries to set revenues, expenses, income summary, and dividends balances to zero for the next period

At the end of the period

An account that relates to a particular accounting period and is closed at the end of the period

Nominal account

An account that is not closed at the end of the period

Entries that transfer the revenues, expenses, and dividends to the retained earnings account to prepare the company's books for the next period

A temporary account into which revenues and expenses are transferred prior to their final transfer into

Make the revenue accounts equal zero via the income summary account

Service revenue is debited, income summary is credited

Make expense accounts equal zero via the income summary account

Income summary will be debited, each expense will be credited

Make the income summary amount equal zero via the retained earnings account

Income summary is debited, retained earnings is credited

Make the dividends equal zero via the retained earnings account

Retained earnings is debited, dividends is credited

A post-closing trial balance

A list of accounts and their balances at the end of the period

Assets, liabilities, common stock, and retained earnings (only permanent accounts)

The process by which companies produce their financial statements for a specific period

Journalizing transactions and posting to the accounts

Adjusting the accounts, preparing financial statements, and closing the accounts

Measures the company's ability to pay current liabilities from current assets

Current ratio = total current assets / total current liabilities

Because that means it has plenty of current assets to pay its current liabilities

Improvement in a company's ability to pay its current debts

Deterioration in a company's ability to pay its current debts

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Special journal entries that ease the burden of accounting transactions in a later period

Accrual-type adjustments