Ch. 4 Flashcards
A balance sheet that places each asset and each liability into a specific category.
Classified balance sheet
A measure of how quickly an item can be converted to cash
Liquidity
An asset that is expected to be converted to cash, sold, or used up in the next 12 months or normal business cycle
current asset
The time span during which cash is paid for goods and services and then are sold to customers for cash
operating cycle
Investments in bonds of stocks in which the company intends to hold on to longer than 1 year
long term investments
Also called fixed assets, long-lived tangibles such as buildings, land, equipment
Property, plant, equipment
An asset with no physical form that is valuable because the special rights it caries
intangible asset
A liability that must be paid with cash, or with goods and services within one year of within the entity’s operating cycle if longer than one year
current liability
A liability that does not need to be paid within one year of within the entity’s operating cycle, which ever is longer
long term liability
A step in the accounting cycle that occurs at the end of the period. Consist of journalizing and posting closing entries to set the balances of rev, exp, income summary, and dividends to zero.
Closing process
An account that relates to a particular accounting period and is closed at the end of that period. Name the accounts in this category
Temporary accounts.
Rev, exp, income summary, and dividends
An account that is not closed at the end of the period. Name the accounts that fit in this category
Permanent accounts.
Assets, liabilities, common stock, and retained earnings accounts.
Entries that transfer the revenues, expenses, and dividends balances to the retained earnings account to prepare for the next cycle
Closing entries
A temporary account into which revenues and expenses are transferred prior to their final transfer into the retained earnings account.
Income summary
What are the four steps to closing temporary accounts, assume positive revenue
- Make Rev equal zero by moving them to the credit side of the income summary account (if there is positive revenue)
- Make expense accounts equal zero by moving them to the debit side of the income summary
- Make income summary equal zero by transferring net income/loss to retained earnings.
- Transfer dividends to the debit side of retained earnings.
