{
 "source": "https://peabody.kids/flashcards/tp-accounting-terms",
 "id": "tp-accounting-terms",
 "title": "Accounting Terms and Equations",
 "category": "test-prep",
 "subject": "Accounting",
 "levels": [
  "college",
  "adult"
 ],
 "description": "Core accounting vocabulary, statements and formulas.",
 "tags": [
  "accounting",
  "business",
  "finance"
 ],
 "frontLabel": "Term",
 "backLabel": "Meaning",
 "cards": [
  [
   "Accounting equation",
   "Assets = Liabilities + Owner's equity"
  ],
  [
   "Asset",
   "A resource owned that has future value"
  ],
  [
   "Liability",
   "An obligation owed to others"
  ],
  [
   "Equity",
   "Owners' claim on the assets after liabilities"
  ],
  [
   "Revenue",
   "Income earned from selling goods or services"
  ],
  [
   "Expense",
   "Cost of operating a business"
  ],
  [
   "Net income",
   "Revenues minus expenses"
  ],
  [
   "Net loss",
   "Expenses exceed revenues"
  ],
  [
   "Double-entry bookkeeping",
   "Every transaction affects at least two accounts with equal debits and credits"
  ],
  [
   "Debit",
   "An entry on the left side of an account"
  ],
  [
   "Credit",
   "An entry on the right side of an account"
  ],
  [
   "Normal balance of assets",
   "Debit"
  ],
  [
   "Normal balance of liabilities",
   "Credit"
  ],
  [
   "Normal balance of revenue",
   "Credit"
  ],
  [
   "Normal balance of expenses",
   "Debit"
  ],
  [
   "Journal",
   "Chronological record of transactions"
  ],
  [
   "General ledger",
   "The collection of all accounts"
  ],
  [
   "Chart of accounts",
   "List of all accounts a business uses"
  ],
  [
   "Trial balance",
   "List of account balances proving debits equal credits"
  ],
  [
   "T-account",
   "A simple diagram of an account with debit and credit sides"
  ],
  [
   "Adjusting entry",
   "Update made at period end to match revenues and expenses to the right period"
  ],
  [
   "Closing entries",
   "Zero out temporary accounts at the end of the period"
  ],
  [
   "Accrual accounting",
   "Records revenue when earned and expenses when incurred"
  ],
  [
   "Cash basis accounting",
   "Records transactions only when cash changes hands"
  ],
  [
   "Matching principle",
   "Expenses are matched with the revenues they helped earn"
  ],
  [
   "Revenue recognition principle",
   "Record revenue when it is earned"
  ],
  [
   "Going concern",
   "Assumption that the business will continue operating"
  ],
  [
   "GAAP",
   "Generally Accepted Accounting Principles in the US"
  ],
  [
   "IFRS",
   "International Financial Reporting Standards"
  ],
  [
   "Conservatism principle",
   "Choose the option that is less likely to overstate assets and income"
  ],
  [
   "Materiality",
   "Only significant information needs separate disclosure"
  ],
  [
   "Balance sheet",
   "Shows assets, liabilities and equity at one date"
  ],
  [
   "Income statement",
   "Shows revenues and expenses over a period"
  ],
  [
   "Statement of cash flows",
   "Shows cash in and out from operating, investing and financing"
  ],
  [
   "Statement of retained earnings",
   "Shows changes in retained earnings over a period"
  ],
  [
   "Retained earnings",
   "Profits kept in the business rather than paid out"
  ],
  [
   "Current assets",
   "Assets expected to be turned into cash within a year"
  ],
  [
   "Current liabilities",
   "Obligations due within a year"
  ],
  [
   "Long-term assets",
   "Assets held for more than a year"
  ],
  [
   "Accounts receivable",
   "Money customers owe the business"
  ],
  [
   "Accounts payable",
   "Money the business owes suppliers"
  ],
  [
   "Notes payable",
   "Written promises to pay"
  ],
  [
   "Prepaid expense",
   "An expense paid in advance, recorded as an asset until used"
  ],
  [
   "Unearned revenue",
   "Cash received before service is provided; a liability"
  ],
  [
   "Accrued expense",
   "An expense incurred but not yet paid"
  ],
  [
   "Inventory",
   "Goods held for sale"
  ],
  [
   "FIFO",
   "First-in, first-out cost flow method for inventory"
  ],
  [
   "LIFO",
   "Last-in, first-out cost flow method for inventory"
  ],
  [
   "Weighted average",
   "Inventory costing using the average cost of goods"
  ],
  [
   "Cost of goods sold",
   "Direct cost of the products sold"
  ],
  [
   "Gross profit",
   "Sales minus cost of goods sold"
  ],
  [
   "Operating income",
   "Gross profit minus operating expenses"
  ],
  [
   "Depreciation",
   "Spreading the cost of a long-term asset over its useful life"
  ],
  [
   "Straight-line depreciation",
   "Equal depreciation each year"
  ],
  [
   "Accumulated depreciation",
   "Total depreciation recorded to date on an asset"
  ],
  [
   "Book value",
   "Asset cost minus accumulated depreciation"
  ],
  [
   "Salvage value",
   "Estimated value of an asset at the end of its life"
  ],
  [
   "Amortization",
   "Spreading the cost of an intangible asset over time"
  ],
  [
   "Goodwill",
   "Value of a business beyond its identifiable net assets"
  ],
  [
   "Allowance for doubtful accounts",
   "Estimate of receivables that will not be collected"
  ],
  [
   "Bad debt expense",
   "Cost of uncollectible receivables"
  ],
  [
   "Common stock",
   "Basic ownership shares of a corporation"
  ],
  [
   "Treasury stock",
   "Shares a company has bought back"
  ],
  [
   "Paid-in capital",
   "Amounts investors paid for stock"
  ],
  [
   "Current ratio",
   "Current assets divided by current liabilities"
  ],
  [
   "Quick ratio",
   "Liquid assets divided by current liabilities"
  ],
  [
   "Debt-to-equity ratio",
   "Total liabilities divided by equity"
  ],
  [
   "Gross margin ratio",
   "Gross profit divided by sales"
  ],
  [
   "Return on assets",
   "Net income divided by average total assets"
  ],
  [
   "Return on equity",
   "Net income divided by average equity"
  ],
  [
   "Inventory turnover",
   "Cost of goods sold divided by average inventory"
  ],
  [
   "Working capital",
   "Current assets minus current liabilities"
  ],
  [
   "Liquidity",
   "Ability to meet short-term obligations"
  ],
  [
   "Solvency",
   "Ability to meet long-term obligations"
  ],
  [
   "Bank reconciliation",
   "Matching the cash records to the bank statement"
  ],
  [
   "Petty cash",
   "A small fund for minor expenses"
  ],
  [
   "Internal controls",
   "Procedures that protect assets and ensure accurate records"
  ],
  [
   "Audit",
   "Independent examination of financial statements"
  ],
  [
   "CPA",
   "Certified public accountant"
  ],
  [
   "Managerial accounting",
   "Reporting for internal decisions"
  ],
  [
   "Financial accounting",
   "Reporting to outside users"
  ],
  [
   "Cost accounting",
   "Measuring the cost of making products"
  ],
  [
   "Budget variance",
   "Difference between budgeted and actual amounts"
  ],
  [
   "Contribution margin",
   "Sales minus variable costs"
  ],
  [
   "Break-even in units",
   "Fixed costs divided by contribution margin per unit"
  ],
  [
   "Opportunity cost",
   "Value of the next best alternative given up"
  ],
  [
   "Sunk cost",
   "A past cost that cannot be recovered"
  ],
  [
   "Payroll",
   "Employee compensation records and payments"
  ],
  [
   "Gross pay",
   "Pay before deductions"
  ],
  [
   "Net pay",
   "Pay after deductions"
  ],
  [
   "Fiscal year",
   "A 12-month accounting period"
  ],
  [
   "Subsidiary ledger",
   "Detailed records supporting a control account"
  ],
  [
   "Source document",
   "Evidence of a transaction, such as a receipt"
  ],
  [
   "Invoice",
   "A bill for goods or services"
  ],
  [
   "Purchase order",
   "A buyer's request to a seller to supply goods"
  ]
 ]
}