Chapter 4 Vocabulary Flashcards Preview

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Flashcards in Chapter 4 Vocabulary Deck (19):
1

accounting cycle

The process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance.

2

account form

Another name for the income summary account because it has the effect of clearing the revenue and expense accounts of their balances.

3

closing entries

The entries that transfer the balances of the revenue; expense; and drawing accounts to the owner’s capital account.

4

closing process

The transfer process of converting temporary account balances to zero by transferring the revenue and expense account balances to Income Summary; transferring the income summary account balance to the owner’s capital account; and transferring the owner’s drawing account to the owner’s capital account.

5

closing the books

The process of transferring temporary accounts balances to permanent accounts at the end of the accounting period.

6

current assets

Cash and other assets that are expected to be converted to cash or sold or used up; usually within one year or less; through the normal operations of the business.

7

current liabilities

Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets.

8

current ratio

A financial ratio that is computed by dividing current assets by current liabilities.

9

fiscal year

The annual accounting period adopted by a business.

10

fixed assets

The number of dollars of sales that are generated from each dollar of average fixed assets during the year; computed by dividing the net sales by the average net fixed assets.

11

Income Summary

An account to which the revenue and expense account balances are transferred at the end of a period.

12

liquidity

The ability to convert assets into cash.

13

long-term liabilities

Liabilities that usually will not be due for more than one year.

14

natural business year

A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle.

15

notes receivable

A customer’s written promise to pay an amount and possibly interest at an agreed-upon rate.

16

real accounts

Term for balance sheet accounts because they are relatively permanent and carried forward from year to year.

17

solvency

The ability of a firm to pay its debts as they come due.

18

temporary accounts

Accounts that report amounts for only one period.

19

working capital

The excess of the current assets of a business over its current liabilities.