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What is the first step in the accounting cycle?

Collect and verify source documents

What is the third step in the accounting cycle?

Post journal transactions to ledger

What is the last step in the accounting cycle?

Prepare the post-closing trial balance

Assets = Liabilities plus Owner’s Equity

A = L + OEThis is the same as the balance

sheet equation

accounting equation

The amount of money owed to others for goods or services

bought on credit.

accounts payable

The money owed to a company for services rendered or goods

purchased by customers on credit.

accounts receivable

The money and things a company owns

Assets

The total of cash and other assets put into the business by

the owner.

Capital

The amount of money that comes into and goes out of a company.

cash flow

The list of accounts unique to a specific company based on its business. These accounts are used to track dollar amounts

coming into and going out of a company.

chart of accounts

The right-hand column of dollar amounts.

Credit

An entity or individual that lends money to a company

creditor (see liabilities)

The acronym used to remember which debit and credit accounts

get increased.

DEAD COIL

The left-hand column of dollar amounts.

Debit

The fact that every transaction affects at least two accounts

double-entry accounting

The money that’s spent by a company to continue its business

activities and operations.

Expenses

Money earned for goods or services provided to customers.

income (see revenue)

Money or assets owned personally by the business owner

and put in to the business for business use.

Investments

A record of financial transactions listed chronologically in a log.

Journal

The money a company owes

liabilities (see creditor

The money a company owes another beyond a year, usually in

exchange for a product.

notes payable

The value of the owner’s investment in a company.

owner’s equity

The money that’s earned from a company’s business activities.

revenue (see income)

The paper trail that provides evidence that money or capital

came into or out of the company.

source documents

An exchange (i.e., fee for service, money for tangibles or things,

donations, contributions, etc.) that amounts to value that must be

recorded.

Transaction

Cash or other assets taken out of the business by the owner for

personal use.

Withdrawals

The sequence of detailed transactions that supports

accounting entries. Provides a clear path of transactions that a reviewer can follow in order to understand specific accounting

activity.

audit trail

The log that contains a record of each account. It’s prepared after the general journal and before

the trial balance

general ledger

The process of transferring amounts from the general journal

to the general ledger.posting

This type of error switches the digits of a number, for example,

writing 53 instead of 35. transposition error

A list of all the accounts and their balances. Most information

needed for preparing the various financial statements is noted on

this single page.

trial balance

This type of error misplaces the decimal in a number; for

example, writing $180 instead of $1,800.

slide error

A statement that itemizes the revenue and expenses, and

computes the net income or loss for a period of time. Also referred to as a profit and loss statement,

a P&L, and a statement of earnings.

income statement

Revenue – Expenses = Net Income (or Net Loss)

income statement equation

Occurs when a company’s revenues exceed its expenses.

net income

Occurs when a company’s expenses exceed its revenue.

net loss

An item of value owned by an individual or firm.

Asset

Insurance that pays for income lost when a business is closed because of a covered disaster.

business interruption insurance

Increasing market penetration by moving into new markets and

broadening the consumer base. diversification

An agreement, signed by an employee, not to disclose

sensitive information about a business.

employee confidentiality agreement

Insurance protecting a business from lawsuits.

general liability insurance

Misconduct by a professional, such as a doctor, lawyer, or accountant. It is judged by

comparing the professional’s action or inaction against a

“reasonable person” standard malpractice

To lessen or minimize the severity of one's losses or

damage. mitigate

A fixed periodic payment made to insurance companies in exchange for insurance.

premiums

Insurance protecting a company from lawsuits if someone is

injured by its product. product liability insurance

Situation where there is a chance of either loss or no loss, but no chance of gain; for example,

either a building will burn down or it won't

pure risk

Steps a manufacturer takes to ensure that its products are safe

and meet the company’s standards.

Quality assurance

The potential for a negative event.

risk

To reduce the risk to an asset through reducing the probability

of a problem and limiting the effects of a problem once it

occurs.

Risk mitigation

A situation where the possibility of either a financial loss or a financial gain exists, as in

purchase of shares

Speculative risk

A partnership between two businesses, where the

businesses share resources instead of developing them

internally. Sometimes the term joint venture is used for these

partnerships. strategic partnership

A monetary guarantee that an obligation will be fulfilled. If the

obligation is not fulfilled, the offended party gets to recoup its

losses via the bond.

surety bond

Monetary compensation for an employee injured while working,

often mandated by law. Such compensation pays a percentage of lost wages and the employee’s

medical care for that injury.

workers compensation

A document sent to shareholders at the end of every year

Annual report

A summary of a firm’s assets, liabilities, and owner equity. It

can also be called a statement of financial position.

balance sheet

Methods for analyzing the financial status of a firm,

including balance sheets and cash flow statements.

financial analysis tools

A financial document showing a company’s revenues and

expenses, and the difference between them. It is usually

published quarterly or annually—though many managers prepare

one each month profit and loss statement

Establishing a planned level of spending for a given time period.

budgeting

A planned level of cash income and spending for a given time

period. cash budget

Opportunities, risks, and threats that are outside of an

organization’s control. Political, environmental, technological, and

social factors

external factors

To estimate for the future based on current data

extrapolation

The process of making extrapolations about the future

based on past data forecasting

The process of allocating a firm’s resources to maximize value.

manage

A projection of income and expenses based on a forecasted

sales revenue for a given time period.

operating budget

An analysis based on subjective judgment that is not quantifiable, such as management expertise,

labor relations, etc.

qualitative analysis

An analysis based on understanding the reasoning of a

given event or behavior. quantitative analysis

The process of allocating money to a specific project, business unit, or cause. A way to assign the available resource in a very

specific and economic way. resource allocation