WGU VYC1 Principles of Accounting

Accounts Payable - Amounts a business must pay in the future. Accounts Receivable - Claims for future collection from customers. Assets - Property owned by a business. Balance Sheet - A formal report of a business' financial condition on a certain date; reports the assets, liabilities, and owner's equity of the business. Break Even - A point at which revenue equals expenses. Business Transactions - A financial event that changes the resources of a firm. Capital - Financial investment in a business; equity. Equity - An owner's financial interest in a business. Expense - An outflow of cash, use of other assets, or incurring of a liability. Fair Market Value - The current worth of an asset or the price the asset would bring if sold on the open market. Fundamental Accounting Equation - The relationship between assets and liabilities plus the owner's equity. Income Statement - A formal report of business operations covering a specific period of time; also called a profit and loss statement or a statement of income and expenses. Liabilities - Debts or obligations of a business. Net Income - The result of an excess of revenue over expenses. Net Loss - The result of an excess of expenses over revenue. On Account - An arrangement to allow payment at a later date; also called a charge account or open-account credit. Owner's Equity - The financial interest of the owner of a business; also called proprietorship or net worth. Revenue - An inflow of money or other assets that results from the sales of goods or services or from the use of money or property; also called income. Statement of Owner's Equity - A formal report of changes that occurred in the owner's financial interest during a reporting period. Withdrawals - Funds taken from the business by the owner for personal use. Accounting - The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties. Accounting System - A process designed to accumulate, classify, and summarize financial data. Auditing - The review of financial statements to assess their fairness and adherence to generally accepted accounting principles. Auditor's Report - An independent accountant's review of a firm's financial statements. Certified Public Accountant (CPA) - An independent accountant who provides accounting services to the public for a fee. Corporation - A publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business. Creditor - One to whom money is owned. Discussion Memorandum - An explanation of a topic under consideration by the Financial Accounting Standards Board. Economic Entity - A business or organization whose major purpose is to produce a profit for its owners. Entity - Anything having its own separate identity, such as an individual, a town, a university, or a business. Exposure Draft - A proposed solution to a problem being considered by the Financial Accounting Standards Board. Financial Statements - Periodic Reports of a firm's financial position or operating results. Generally Accepted Accounting Principles (GAAP) - Accounting standards developed and applied by professional accountants. Governmental Accounting - Accounting work performed for a federal, state, or local governmental unit. International Accounting - The study of accounting principles used by different countries. Management Advisory Services - Services designed to help clients improve their information systems or their business performance. Managerial Accounting - Accounting work carried on by an accountant employed by a single business in industry. Partnership - A business entity owned by two or more people who are legally responsible for the debts and taxes of the business. Public Accountants - Members of firms that perform accounting services for other companies. Separate Entity Assumption - The concept of keeping a firm's financial records separate from the owner's personal financial records. Social Entity - A nonprofit organization, such as a city, public school, or public hospital. Sole Proprietorship - A business entity owned by one person who is legally responsible for the debts and taxes of the business. Statements of Financial Accounting Standards - Accounting principles established by the Financial Accounting Standards Board. Stock - Certificates that represent ownership of a corporation. Stockholders - The owners of a corporation; also called shareholders. Tax Accounting - A service that involves tax compliance and tax planning. Account Balance - The difference between the amounts recorded on the two sides of an account. Accounts - Written records of the assets, liabilities, and owner's equity of a business. Chart of Accounts - A list of the accounts used by a business to record its financial transactions. Classification - A means of identifying each account as an asset, liability, or owner's equity. Credit - An entry on the right side of an account. Debit - An entry on the left side of an account. Double-Entry System - An accounting system that involves recording the effects of each transaction as debits and credits. Drawing Account - A special type of owner's equity account set up to record the owner's withdrawal of cash from the business. Footing - A small pencil figure written at the base of an amount column showing the sum if the entries in the column. Normal Balance - The increase side of an account. Permanent Account - An account that is kept open from one accounting period to the next. Slide - An accounting error involving a misplaced decimal point. T Account - A type of account, resembling a T, used to analyze the effects of a business transaction. Temporary Account - An account whose balance is transferred to another account at the end of an accounting period. Transposition - An accounting error involving misplaced digits in a number. Trial Balance - A statement to test the accuracy of total debits and credits after the transactions have been recorded. Accounting Cycle - A series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information. Audit Trail - A chain of references that makes it possible to trace information, locate errors, and prevent fraud. Balance Ledger Form - A ledger account form that shows the balance of the account after each entry is posted. Chronological Order - Organized in the order in which the events occur. Compound Entry - A journal entry with more than one debit or credit. Correcting Entry - A journal entry made to correct an erroneous entry. General Journal - A financial record for entering all types of business transactions; a record of original entry. General Ledger - A permanent, classified record of all accounts used in a firm's operation; a record of final entry. Journal - The record of original entry. Journalizing - Recording transactions in a journal. Ledger - The record of final entry. Posting - Transferring data from a journal to a ledger. Account Form Balance Sheet - A balance sheet that lists assets on the left and liabilities and owner's equity on the right (see Report Form Balance Sheet) Adjusting Entries - A journal entries made to update accounts for items that were not recorded during the accounting period. Adjustments - See Adjusting Entries Book Value - That portion of an asset's original cost that has not yet been depreciated. Contra Account - An account with a normal balance that is opposite that of a related account. Contra Asset Account - An asset account with a credit balance, which is contrary to the normal balance of an asset account. Depreciation - Allocation of the cost of a long-term asset to operations during its expected useful life. Prepaid Expenses - Expense items acquired, recorded, and paid for in advance of their use. Report Form Balance Sheet - A balance sheet that lists the asset accounts first, followed by liabilities and owner's equity. Salvage Value - An estimate of the amount that could be received by selling or disposing of an asset at the end of its useful life. Straight-Line Depreciation - Allocation of an asset's cost in equal amounts to each accounting period of the asset's useful life. Worksheet - A form used to gather all data needed at the end of an accounting period to prepare financial statements. Closing Entries - Journal entries that transfer the results of operations (net income or net loss) to owner's equity and reduce the revenue, expense, and drawing account balances to zero. Income Summary Account - A special owner's equity account that is used only in the closing process to summarize the results of operations. Interpret - To understand and explain the meaning and importance of something (such as financial statements). Postclosing Trial Balance - A statement that is prepared to prove the equality of total debits and credits after the closing process is completed. Step 1 - Accounting Cycle: Step to analyze transactions. Analyze source documents to determine their effects on the basic accounting equation. Step 2 - Accounting Cycle: Step to journalize the transactions. Record the effects of the transactions in a journal. Step 3 - Accounting Cycle: Step to post the journal entries. Transfer data from the journal to the general ledger accounts. Step 4 - Accounting Cycle: Step to prepare a worksheet. At the end of each period, prepare a worksheet. Trial Balance - Section of the worksheet used to prove the equality of debits and credits in the general ledger. Adjustments - Section of the worksheet used to enter changes in account balances that are needed to present an accurate and complete picture of the financial affairs of the business. Adjusted Trial Balance - Section of the worksheet used to verify the equality of debits and credits after the adjustments. The amounts from this section are extended to the Income Statement and Balance Sheet sections. Income Statement - Section of the worksheet (not Balance Sheet) used to prepare the financial statements. Balance Sheet - Section of the worksheet (not Income Statement) used to prepare the financial statements. Step 5 - Accounting Cycle: Step to prepare financial statements. Prepare financial statements to report information to owners, managers, and other interested parties. Income Statement - Financial statement that shows the results of operations for the period. Statement of Owner's Equity - Financial statement which reports the changes in the owner's financial interest during the period. Balance Sheet - Financial Statement which shows the financial position of the business at the end of the period. Step 6 - Accounting Cycle: Step to record adjusting entries. Use the worksheet to journalize and post adjusting entries. The adjusting entries are a permanent record of the changes in account balances shown on the worksheet. Step 7 - Accounting Cycle: Step to record closing entries. Journalize and post closing entries to transfer net income or net loss to owner's equity; and reduce the balances of revenue, expense, and drawing accounts. Step 8 - Accounting Cycle: Step to prepare a postclosing trial balance. The postclosing trial balance shows that the general ledger is in balance after the closing entries are posted. It is also used to verify that there are zero balances in revenue, expense, and drawing accounts. Step 9 - Accounting Cycle: Step to interpret the financial information. Use financial statements to understand and communicate financial information and to make decisions. Accountants, owners, managers, and other interested parties interpret financial statements by comparing such things as profit, revenue, and expenses from one accounting period to the next. Step 1 - Closing Process: Step in which the balance of the revenue account is transferred to the Income Summary account. Step 2 - Closing Process: Step in which the balance of the expense account is transferred to the Income Summary account. Step 3 - Closing Process: Step in which the balance of the Income Summary account is transferred to the owner's capital account. Step 4 - Closing Process: Step in which the balance of the drawing account is transferred to the owner's capital account. Accounts Receivable Ledger - A subsidiary ledger that contains credit customer accounts. Charge-Account Sales - Sales made through the use of open-account credit or one of various types of credit cards. Contra Revenue Account - An account with a debit balance, which is contrary to the normal balance for a revenue account. Control Account - An account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the accounts in the subsidiary ledger. Credit Memorandum - A note verifying that a customer's account is being reduced by the amount of a sales return or sales allowance plus any sales tax that may have been involved. Invoice - A customer billing for merchandise bought on credit. List Price - An established retail price. Manufacturing Business - A business that sells goods that it has produced. Merchandise Inventory - The stock of goods a merchandising business keeps on hand. Merchandising Business - A business that sells goods purchased for resale. Net Price - The list price less all trade discounts. Net Sales - The difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account. Open-Account Credit - A system that allows the sale of services or goods with the understanding that payment will be made at a later date. Retail Business - A business that sells directly to individual consumers. Sales Allowance - A reduction in the price originally charged to customers for goods or services. Sales Journal - A special journal used to record sales of merchandise on credit. Sales Return - A firm's acceptance of a return of goods from a customer. Sales Returns and Allowances - A contra revenue account where sales returns and sales allowances are recorded; sales returns and allowances are subtracted from sales to determine net sales. Schedule of Accounts Receivable - A listing of all balances of the accounts in the accounts receivable subsidiary ledger. Service Business - A business that sells services. Special Journal - A journal used to record only one type of transaction. Subsidiary Ledger - A ledger dedicated to accounts of a single type and showing details to support a general ledger account. Trade Discount - A reduction from list price. Wholesale Business - A business that manufactures or distributes goods to retail businesses or large consumers such as hotels and hospitals. Sales Journal - Journal used by merchandising business to record sales of merchandise on credit. Purchases Journal - Journal used by merchandising business to record purchases of merchandise on credit. Cash Receipts Journal - Journal used by merchandising business to record cash received from all sources. Cash Payments Journal - Journal used by merchandising business to record all disbursements of cash. General Journal - Journal used by merchandising business to record all transactions that are not recorded in another special journal and all adjusting and closing entries.