| Accounting cycle | Recurring steps performed each accounting period, starting with analyzing transactions and continuing through the post-closing trial balance (or reversing entries).
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| Accounting period | Length of time covered by financial statements; also called reporting period.
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| Accrual basis accounting | Accounting system that recognizes revenues when earned and expenses when incurred; the basis for GAAP.
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| Accrued expenses | Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities.
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| Accrued revenues | Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for recording accrued revenues involve increasing assets and increasing revenues.
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| Adjusted trial balance | List of accounts and balances prepared after period-end adjustments are recorded and posted.
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| Adjusting entry | Journal entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account.
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| Annual financial statements | Financial statements covering a one-year period; often based on a calendar year, but any consecutive 12-month (or 52-week) period is acceptable.
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| Book value | Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account.
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| Cash basis accounting | Accounting system that recognizes revenues when cash is received and records expenses when cash is paid.
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| Classified balance sheet | Balance sheet that presents assets and liabilities in relevant subgroups, including current and noncurrent classifications.
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| Closing entries | Entries recorded at the end of each accounting period to transfer end-of-period balances in revenue, gain, expense, loss, and dividend accounts to the retained earnings account.
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| Closing process | Necessary end-of-period steps to prepare the accounts for recording the transactions of the next period.
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| Contra account | Account linked with another account and having an opposite normal balance; reported as a subtraction from the other account's balance.
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| Current assets | Cash and other assets expected to be sold, collected, or used within one year or the company's operating cycle, whichever is longer.
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| Current liabilities | Obligations due to be paid or settled within one year or the company's operating cycle, whichever is longer.
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| Current ratio | Ratio used to evaluate a company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities.
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| Depletion | Process of allocating the cost of natural resources to periods when they are consumed and sold.
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| Fiscal year | Consecutive 12-month (or 52-week) period chosen as the organization's annual accounting period.
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| Income | Summary Temporary account used only in the closing process to which the balances of revenue and expense accounts (including any gains or losses) are transferred; its balance is transferred to the retained earnings account.
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| Intangible assets | Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits.
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| Interim financial statements | Financial statements covering periods of less than one year; usually based on one-, three-, or six-month periods.
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| Long-term investments | Long-term assets not used in operating activities such as notes receivable and investments in stocks and bonds.
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| Long-term liabilities | Obligations not due to be paid within one year or the operating cycle, whichever is longer.
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| Lower of cost or market (LCM) | Required method to report inventory at market replacement cost when that market cost is lower than recorded cost.
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| Matching principle | Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
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| Natural business year | Twelve-month period that ends when a company's sales activities are at their lowest point.
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| Operating cycle | Normal time between paying cash for merchandise or employee services and receiving cash from customers.
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| Permanent accounts | Accounts that reflect activities related to one or more future periods; balance sheet accounts whose balances are not closed; also called real accounts.
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| Plant assets | Tangible long-lived assets used to produce or sell products and services; also called property, plant and equipment (PP&E) or fixed assets.
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| Post-closing trial balance | List of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.
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| Prepaid expenses | Items paid for in advance of receiving their benefits; classified as assets.
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| Pro forma financial statements | Statements that show the effects of proposed transactions and events as if they had occurred.
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| Profit margin | Ratio of a company's net income to its net sales; the percent of income in each dollar of revenue; also called net profit margin.
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| Reversing entries | Optional entries recorded at the beginning of a period that prepare the accounts for the usual journal entries as if adjusting entries had not occurred in the prior period.
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| Straight-line depreciation | Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.
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| Temporary accounts | Accounts used to record revenues, expenses, and dividends; they are closed at the end of each period; also called nominal accounts.
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| Time period principle | Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years.
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| Unadjusted trial balance | List of accounts and balances prepared before accounting adjustments are recorded and posted.
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| Unclassified balance sheet | Balance sheet that broadly groups assets, liabilities, and equity accounts.
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| Unearned revenue | Liability created when customers pay in advance for products or services; earned when the products or services are later delivered.
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| Work sheet | Spreadsheet used to draft an unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements.
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| Working papers | Analyses and other informal reports prepared by accountants and managers when organizing information for formal reports and financial statements.
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