Accounting- Chapter 4 Flashcard Example #65390

accounting cycle
The process that begins with analyzing and journalizing transactions and ends with the post-closing trial balance. (162)
clearing account
Another name for the income summary account because it has the effect of clearing the revenue and expense accounts of their balances. (157)
closing entries
The entries that transfer the balances of the revenue, expense, and drawing accounts to the owner’s capital account. (157)
closing the books
The process of transferring temporary accounts balances to permanent accounts at the end of the accounting period. (157)
current assets
Cash and other assets that are expected to be converted to cash or sold or used up, usually within one year or less, through the normal operations of the business. (155)
current liabilities
Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets. (155)
current ratio
A financial ratio that is computed by dividing current assets by current liabilities. (175, 704)
fiscal year
The annual accounting period adopted by a business. (173)
fixed assets (or plant assets)
Long-term or relatively permanent tangible assets such as equipment, machinery, and buildings that are used in the normal business operations and that depreciate over time. (116, 155, 404)
Income Summary
An account to which the revenue and expense account balances are transferred at the end of a period. (157)
The ability to convert assets into cash. (174, 703)
long-term liabilities
Liabilities that usually will not be due for more than one year. (155)
natural business year
A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle. (174)
notes receivable
A customer’s written promise to pay an amount and possibly interest at an agreed-upon rate. (155, 360)
real (permanent) accounts
Term for balance sheet accounts because they are relatively permanent and carried forward from year to year. (156)
The ability of a firm to pay its debts as they come due. (174, 703)
temporary (nominal) accounts
Accounts that report amounts for only one period. (157)
working capital
The excess of the current assets of a business over its current liabilities. (174, 704)

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