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What is straight-line depreciation?

(S/L) allocates an asset's coast in equal amounts to each accounting period of its useful life.


What is the Straight-line depreciation formula?

S/L depreciation = cost - salvage value /estimated months of useful life


Salvage value

The estimate of what we might be able to receive for sale value or scrape value at the end of an asset's useful life.


Define "Assets"

items owned by a company that will provide probable future value.


Define "liabilities"

obligations that may require sacrifice or surrender of future economic benefits in the form of transferring assets or providing services.


What is the accounting equation?

Assets = liabilities + equity


What is a Balance sheet?

It shows the business' financial position on a given date. Sometimes referred to as the Statement of financial position.


What is revenue?

The inflow of expected money generally created during a transaction.


What is an Income Statement?

It shows the financial state of a business over a period of time


What statements are always prepared?

1. Income statement 2. Statement of owners Equity 3. Balance Sheet


What is a Temporary Account?

An account whose balance is transferred to another account at the end of an accounting period.


True or False: Increases to Liabilities and Owners Equity are recorded with a credit?



The process of recording transactions in the general ledger is called what?



True or False: When making entries into the General Journal the credit is recorded first.



Owners equity is?

The financial interest of the owner in a business.


What does it mean when the liabilities outweigh the assets?

That the business has become insolvent.


What is the allowance method?

It is a method of recording uncollectable accounts that estemates looses and charges them to expense in the period when the sales are recorded.


the estimated loss for the period is debited to Uncollectible Accounts Expense and credited toAllowance for Doubtful Accounts


What is the direct charge off method?

The method of recording ucollectable accounts in the period in which they occur.


This is the only method allowed for tax purposes.


What is the formula to figure the depeletion expense in a given period?


What is the formula for the Acid Test Ratio ( or also known as Quick Asset test) for a company?

(cash+Accounts recieveable+Short term Investments) /Current Liabilities




What does the Acid test ratio tell us about a company?

A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.


Horizontal analysis is...

the comparison of historical financial information over a series of reporting periods, or of the ratios derived from this financial information.


 The intent is to see if any numbers are unusually high or low in comparison to the information for bracketing periods, which may then trigger a detailed investigation of the reason for the difference. The analysis is most commonly a simple grouping of information that is sorted by period, but the numbers in each succeeding period can also be expressed as a percentage of the amount in the baseline year, with the baseline amount being listed as 100%.


A Quick Asset is ?

Quick assets are the highly liquid assets held by a company, including cash, marketable securities and accounts receivable. Quick assets are often calculated as current assets (cash + marketable securities + accounts receivable) minus inventories (since inventories are often a firm's least-liquid current assets). Quick assets are used by companies to calculate certain financial ratios that are used in decision making, including the quick ratio.


What is a common size statement?

They are financial statements with items expressed as percentages of a base amount.