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Accounting System
Accounting system is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activites TERM 2
Asset
DEFINITION 2 Assets are resources that are expected to yield economic future benefits TERM 3
Plant Assets
DEFINITION 3 are tangible assets used in a company's operations that have a useful life of more than one accounting period and used in operations TERM 4
Historical Cost
DEFINITION 4 of a plant asset consists of all necessary and reasonable expenditures to acquire it and to prepare it for its intended use TERM 5
Net Book Value
DEFINITION 5 Historical cost less accumulated deprecitation
Depreciation
the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its useFactors: historical cost, salvage value, and useful life TERM 7
Accumulated Depreciation
DEFINITION 7 contra-assethas the opposite normal balance and it is reported as a subtraction from that other accounts balance TERM 8
Liability
DEFINITION 8 creditors' claims on the assets of a company are called (or money we owe to an individual or a company) TERM 9
Unearned Revenue
DEFINITION 9 Liabilitythat is settled in the future when a company delivers its products or services TERM 10
Owner's Equity
DEFINITION 10 an owner's claim on the assets of a business (also called net assets)
Merchandise Inventory
or simply inventory, refers to products that a compan owns and intends to sell TERM 17
Cost of Goods
Sold
DEFINITION 17 expense of buying and preparing the merchandise (also called cost of sales) TERM 18
Subsidiary
Ledger
DEFINITION 18 a list of individual accounts with common characteristicsTwo important contents are...accounts receivable ledge andaccounts payable ledger TERM 19
Subsidiary Journals
DEFINITION 19 Sales Journal - recording credit salesCash Receipts Journal - recording cash receiptsPurchase Journal - recording credit purchasesCash Disbursements Journal - recording cash paymentsGeneral Journal - transactions not in special journals (miscellaneous) TERM 20
Business Segment
DEFINITION 20 part of a company's operations that serve a particular line of business or class of customersAssets, liabilities, and financial results of operations
Bank Reconciliation
is report explaining any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement TERM 22
Recording Bank Reconciliation
DEFINITION 22
- bank balance: outstanding checks+ bank balance: deposits in transit- book balance: bank fees & NSF checks+ bank balance: interest earned TERM 23
Accounts Receivable
DEFINITION 23 are held by a seller and refer to promises of payment from customers to sellers (credit sales or sales on account) TERM 24
Allowance Method
DEFINITION 24 of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce TERM 25
Percentage of Sales Method
DEFINITION 25 (income statement method) is based on the idea that a given percent of a company's credit sales for the period is uncollectible
Double Declining Balance
uses a depreciation rate that is a multiple of the straight-line rate and applies it to the assets beginning-of-period book value TERM 32
Inadequacy
DEFINITION 32 refers to the insufficient capacity of a company's plant assets to meet its growing productive demands TERM 33
Obsolescnence
DEFINITION 33 refers to the condition of a plant asset that is no longer useful in producing goods and services with a competitive advantage due to new inventions and improvements TERM 34
Four Accounting
Assumptions
DEFINITION 34 Going-concern: a preassumption that the business will continue to operate instead of being sold or shut downMonetary unity: express transactions in monetary or money unitsTime-period: life of the company can be divided into time periodsBusiness entity: business is accounted for separately from other business entities from other business entities, including owner TERM 35
Four Accounting Principles
DEFINITION 35 Measurement (cost) principle - prescribes that accounting information is based on actual costRevenue Recognition Principle - when a company must record revenue when its earnedExpense (matching) Recognition Principle - when a company must record the expenses that incurredFull Disclosure - report details behind financial statements that would impact users decisions
Accounting Information System Principles
Cost Principle Compatibility PrincipleFlexibility PrincipleCost- Benefit PrincipleRelevance Principle TERM 37
Internal Control Principles
DEFINITION 37 Establish responsibilitiesMaintain adequate recordsInsure assets and bond key employeesSeparate record keeping from custody of assetsDivide responsibilities for related transactionsApply technological controlsPerform regular and independent reviews TERM 38
FOB Destination
DEFINITION 38 ownership - transfers when inventory reaches buyer or destinationwho pays shipping - sellerjournal entry-delivery expense $XXXX cash $XXXX TERM 39
FOB Shipping Point
DEFINITION 39 ownership - transfers when leaving the sellerwho pays shipping - buyerjournal entry - merchandise inventory $XXXX cash $XXXX
