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Principles of Accounting, Volume 1: Financial Accounting

Key Terms

Principles of Accounting, Volume 1: Financial AccountingKey Terms

Key Terms

classified balance sheet
presents information on your balance sheet in a more informative structure, where asset and liability categories are divided into smaller, more detailed sections
closing
returning the account to a zero balance
closing entry
prepares a company for the next accounting period by clearing any outstanding balances in certain accounts that should not transfer over to the next period
current ratio
current assets divided by current liabilities; used to determine a company’s liquidity (ability to meet short-term obligations)
income summary
intermediary between revenues and expenses, and the Retained Earnings account, storing all the closing information for revenues and expenses, resulting in a “summary” of income or loss for the period
intangible asset
asset with financial value but no physical presence; examples include copyrights, patents, goodwill, and trademarks
liquidity
ability to convert assets into cash in order to meet primarily short-term cash needs or emergencies
long-term investment
stocks, bonds, or other types of investments held for more than one operating cycle or one year, whichever is longer
long-term liability
debt settled outside one year or one operating cycle, whichever is longer
operating cycle
amount of time it takes a company to use its cash to provide a product or service and collect payment from the customer
permanent (real) account
account that transfers balances to the next period, and includes balance sheet accounts, such as assets, liabilities, and stockholder’s equity
post-closing trial balance
trial balance that is prepared after all the closing entries have been recorded
property, plant, and equipment
tangible assets (those that have a physical presence) held for more than one operating cycle or one year, whichever is longer
temporary (nominal) account
account that is closed at the end of each accounting period, and includes income statement, dividends, and income summary accounts
working capital
current assets less current liabilities; sometimes used as a measure of liquidity
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