Ch 13 - Financials and Closing VOCAB

Question 1

What is a classified financial statement?

Answer 1

format by which revenues and expenses on income statement, and assets and liabilities on balance sheet, are divided into groups of similar accounts and subtotal is given for each group

Question 2

Define current assets.

Answer 2

Assets consisting of cash, items that normally will be converted to cash within one year, or items that will be used up within one year.

Question 3

Define current liabilities.

Answer 3

debts that must be paid within one year.

Question 4

Define current ratio.

Answer 4

relationship between current assets and current liabilities that provides a measure of a firm’s ability to pay its current debts
(current ratio = current assets / current liabilities)

Question 5

Define gross profit.

Answer 5

difference between net sales and cost of goods sold

gross profit = net sales - cost of goods sold

Question 6

Define gross profit percentage.

Answer 6

amount of gross profit from each dollar of sales

gross profit percentage = gross profit / net sales

Question 7

Define inventory turnover.

Answer 7

number of times inventory is purchased and sold during the accounting period
(inventory turnover = cost of goods sold / average inventory)

Question 8

Define liquidity.

Answer 8

Ease with which an item can be converted into cash

Question 9

Define long-term liabilities.

Answer 9

debts of a business that are due more than one year in the future.

Question 10

Define multiple-step income statement.

Answer 10

type of income statement on which several subtotals are computed before the net income is calculated

Question 11

Define plant and equipment.

Answer 11

property that will be used in the business for longer than one year.

Question 12

Define reversing entries.

Answer 12

Journal entries made to reverse the effect of certain adjusting entries involving accrued income or accrued expenses to avoid problems in recording future payments or receipts of cash in a new accounting period

Question 13

Define single-step income statement

Answer 13

type of income statement where only one computation is needed to determine the net income
(total revenue - total expenses = net income)

Question 14

Define working capital.

Answer 14

different between current assets and current liabilities.

it is a measure of firm’s ability to pay current obligations.