Recurring steps performed each accounting period, starting with recording transactions in the journal and continuing through the post-closing trial balance.
Accounting cycle
Journal entries recorded at the end of each accounting period that transfer the end-of-period balances in revenue, expense, and withdrawals accounts to the permanent owner's capital account in order to prepare for the upcoming period and update the owner's capital account for the events of the period just finished.
Closing entries
Obligations due to be paid or settled within the longer of one year or the operating cycle.
Current liabilities
Long-term assets (resources) used to produce or sell products or services; these assets lack physical form.
Intangible assets
Obligations that are not due to be paid within the longer of one year or the operating cycle.
Long-term liabilities
The average time between paying cash for employee salaries or merchandise and receiving cash from customers.
Operating cycle of a business
The owner's claim on the assets of a company.
Owner's equity
Tangible long-lived assets used to produce or sell products and services; also called plant assets.
Plant and equipment
Statements that show the effects of the proposed transactions as if the transactions had already occurred.
Pro forma statements
Optional entries recorded at the beginning of a new year that prepare the accounts for simplified journal entries subsequent to accrual adjusting entries.
Reversing entries
Internal documents that are used to assist the preparers in doing the analyses and organizing the information for reports to be presented to internal and external decision makers.
Working papers
Classified balance sheet:
A balance sheet that presents the assets and liabilities in relevant subgroups.
Closing entries:
Journal entries recorded at the end of each accounting period that transfer the end-of-period balances in revenue, expense, and withdrawals accounts to the permanent owner's capital account in order to prepare for the upcoming period and update the owner's capital account for the events of the period just finished.
Closing process:
A step at the end of the accounting period that prepares accounts for recording the transactions of the next period.
Current assets:
Cash or other assets that are expected to be sold, collected, or used within the longer of one year or the company's operating cycle.
Current liabilities:
Obligations due to be paid or settled within the longer of one year or the operating cycle.
Current ratio:
A ratio that is used to evaluate a company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities.
Income Summary:
A temporary account used only in the closing process to where the balances of revenue and expense accounts are transferred; its balance equals net income or net loss and is transferred to the owner's capital account.
Intangible assets:
Long-lived (capital) assets that have no physical substance but convey a right to use a product or process. (Chapters 4 and 5) Rights, privileges, and competitive advantages to the owner of capital assets used in operations that have no physical substance; examples include patents, copyrights, leaseholds, leasehold improvements, goodwill, and trademarks. (Chapter 12)
Long-term investments:
Assets such as notes receivable or investments in shares and bonds that are held for more than one year or the operating cycle. (Chapter 5) Investments in shares and bonds that are not marketable or, if marketable, are not intended to be converted into cash in the short-term; also funds earmarked for a special purpose, such as bond sinking funds, and land or other assets not used in the company's op erations. See also held-to-maturity securities. (Chapter 18)
Long-term liabilities:
Obligations that are not due to be paid within the longer of one year or the operating cycle.
Nominal accounts:
Another name for temporary accounts.
Operating cycle of a business:
The average time between paying cash for employee salaries or merchandise and receiving cash from customers.
Owner's equity:
The owner's claim on the assets of a company.
Permanent accounts:
Accounts that are used to report on activities related to one or more future accounting periods; their balances are carried into the next period, and include all balance sheet accounts; permanent account balances are not closed as long as the company continues to own the assets, owe the liabilities, and have owner's equity; also called real accounts.
Plant and equipment:
Also called plant assets; are tangible long-lived assets used to produce or sell products and services. See Capital assets.
Post-closing trial balance:
A list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted; a list of balances for all accounts not closed.
Pro forma statements:
Statements that show the effects of the proposed transactions as if the transactions had already occurred.
Real accounts:
Another name for permanent accounts.
Reversing entries:
Optional entries recorded at the beginning of a new period that prepare the accounts for simplified journal entries subsequent to accrual adjusting entries.
Temporary accounts:
Accounts that are used to describe revenues, expenses, and owner's withdrawals for one accounting period; they are closed at the end of the reporting period.
Unclassified balance sheet:
A balance sheet that broadly groups the assets, liabilities and owner's equity.
Work sheet:
A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements; an optional step in the accounting process.
Working papers:
Internal documents that are used to assist the preparers in doing the analyses and organizing the information for reports to be presented to internal and external decision makers.
