Financial Accounting Terms Dictionary

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Financial Accounting Terms
Accounting Cycle


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Accounting Cycle
  
Accounting Cycle
Accounting cycle Accounting cycle refers to the process of recording accounting transactions.
  
1. Analyze transactions to identify the debit and credit components
2. Record journal entries in the accounting journal
3. Transfer debit and credit amounts to each account in accounting ledger
4. Prepare adjusting journal entries
5. Prepare a trial balance
6. Prepare financial statements by transferring balances from the trial balance to appropriate financial statements
7. Close temporary accounts and transfer revenue and expense account balances to retained earnings account 
  
Accounting cycle Accounting cycle by key word
  
1. Analyze the transaction
2. Journal entries
3. Posting to accounting ledger
4. Adjusting journal entries
5. Trial balance
6. Financial statements
7. Close temporary accounts 
  
Debit or credit Debit accounts include asset, expense accounts
Credit accounts include liability, equity, revenue accounts
  
Debit or credit Debit is recorded on the left side of journal entry and t-account
Credit is recorded on the right side of journal entry and t-account
  
Debit or credit On the trial balance, left side lists the balances of all debit accounts
On the trial balance, right side lists the balances of all credit accounts
  
Accounting equation Left side of the equation is equal to left side of the equation
Left side total = Right side total
Debit accounts are recorded on the left side of accounting equation
Credit accounts are recorded on the right side of accounting equation
 
Accounting equation means
Debit accounts total = Credit accounts total
  
Journal entry Accounting transactions are recorded in the form of a journal entry
Journal entry is an entry to the accounting journal
Accounting journal is a collection of all journal entries
All accounting journal entries have two sides, debit and credit
  
For each accounting journal entry, the total of debit sides is equal to the total of credit sides
debit side total = credit side total
If debit side total is not same as the credit side total, the journal entry does not balance and the journal entry is not accurate.
  
Accounting ledger Accounting ledger is a collection of accounts with their debit and credit balances
General ledger keeps all accounts
Subsidiary ledger keeps detailed information about certain accounts
  
An example:
General ledger keeps a sales revenue account for all customers and products
Sales revenue subsidiary ledger keeps sales revenue information by customers or by products
  
Posting Posting is the process of moving the balances of journal entries to appropriated accounts in the ledger
  
An example of journal entry
(Debit)     Cash          2,000
      (Credit)     Sales            2,000
 
$2,000 debit balance is posted to the cash account in the general ledger
$2,000 credit balance is posted to the sales revenue account in the general ledger
    
Adjusting journal entries At the end of period, some accounts are required to make adjustments on their balances to reflect correct amounts under accrual basis of accounting
  
Journal entries to adjust account balances to reflect correct amounts under accrual basis of accounts are called "adjusting journal entries"
  
An example
Entity A borrowed $300,000 dollars on December 1, 20X1
Interest on the borrowings is scheduled to be paid on February 28, 20x2
Interest amount for three months is $3,000
Prepare an adjusting journal entry on December 31, 20X1
  
(Debit)   Interest expense       1,000 

      (Credit)   Interest payable            1,000 
  
$1,000 interest expense is accrued at the end of December 20X1
even if cash payment is not required until February 28, 20X2
  
Trial balance Trial balance lists the balances of all accounts in the general ledger
Trial balance has two sides, debit and credit

Accounts with debit balances are listed on the debit side of trial balance
Accounts with credit balances are listed on the credit side of trial balance

Trial balance is used to check whether the debit side total is equal to the credit side total
If debit side total ≠
credit side total, trial balance includes errors
However, having debit side total = credit side total does not guarantee that the trial balance is error free

An example
When the correct amount of cash sales is $2,000, if this amount was recorded as $3,000 by error, trial balance may still balance with incorrect amounts

(Debit)     Cash          3,000
      (Credit)     Sales            3,000
       
Balance sheet Amounts on the trial balance are transferred to appropriate financial statements for reporting
  
Asset accounts are transferred to balance sheet
Liability accounts are transferred to balance sheet
Equity accounts are transferred to balance sheet
  
Income statement Revenue accounts are transferred to income statement
Expense accounts are transferred to income statement
        
Permanent accounts The balances of asset accounts, liability accounts, equity accounts are accumulated beyond the current accounting period
 
Accounts whose balances carry over beyond the current accounting period are called permanent accounts
        
Temporary accounts Revenue accounts, expense accounts are closed at the end of current accounting period
  
Accounts whose balances do not carry over beyond the current accounting period are called temporary accounts
  
Balances of temporary accounts are transferred to "income summary" account at the end of accounting period
     
Journal entries to transfer balances of temporary accounts to "income summary" account are called "closing journal entries"
  
Once the balances of revenue and expense accounts are transferred to "income summary" account, revenue and expense accounts are closed with zero balances
        
Real accounts, Nominal accounts Permanent accounts are also called as "real" accounts
Temporary accounts are also called as "nominal" accounts
        
        


      
Accounting Cycle
  
Accounting Cycle
   Recording process of accounting transactions
   Accounting journal entry 
   Accounting journal
   Ledger
   General ledger
   Subsidiary ledger
   Posting of accounting transactions
   Chart of accounts
   Real accounts
   Nominal accounts
   Permanent accounts
   Temporary accounts
   Closing journal entries
   Adjusting journal entries
   Trial balance
   Financial statements
   Balance sheet
   Income statement 
  
Accounting Equation
   Debit
   Credit 
   Assets
   Liabilities
   Equity
   Revenue
   Expenses
  
Accrual Basis of Accounting
   Cash basis of accounting
   Accrued expenses
   Deferred expenses
   Accrued revenue
   Deferred revenue
  
Balance Sheet 
   Statement of financial position
   Current assets
   Noncurrent assts
   Current liabilities
   Noncurrent liabilities
   Stockholders' equity
  
Income Statement 
   Multiple-step income statement
   Gross profit
   Selling, general and administrative expenses
   Operating income
   Non-operating income
   Non-operating expenses
   Income from continuing operations
   Discontinued operations
   Extraordinary items
   Income taxes expense
   Deferred income taxes
   Net income
   Comprehensive income
   Other comprehensive income
  






U.S. GAAP by Codification Topic 
 
 105  GAAP Hierarchy 
 105  GAAP History 

 205  Presentation of Financial Statements 
 205-20 Discontinued Operations 
 210  Balance Sheet 
 210-20 Offsetting 
 220  Comprehensive Income 
 225  Income Statement 
 225-20 Extraordinary and Unusual Items 
 230  Statement of Cash Flows 
 250  Accounting Changes and Error Corrections 
 260  Earnings per Share 
 270  Interim Reporting
 
 310  Impairment of a Loan
 320  Investment Securities 
 320  Other-Than-Temporary Impairments, FSP FAS 115-2 
 320-10-05 Overview of Investments in Other Entities 
 320-10-35 Reclassification of Investments in Securities
 323-10 Equity Method Investments
 323-30 Investments in Partnerships and Joint Ventures 
 325-20 Cost Method Investments 
 330  Inventory

 340-20 Capitalized Advertising Costs 
 350-20 Goodwill 
 350-30 Intangibles Other than Goodwill 
 350-40 Internal-Use Software 
 350-50 Website Development Costs 
 360  Property, Plant and Equipment
 360-20 Real Estate Sales 
 
 410  Asset Retirement and Environmental Obligations 
 420  Exit or Disposal Cost Obligations 
 450  Contingencies 
 450-20 Loss Contingencies 
 450-30 Gain Contingencies
 480  Redeemable Financial Instruments 

 505-20 Stock Dividends, Stock Splits 
 505-30 Treasury Stock 

 605  SEC Staff Accounting Bulletin, Topic 13 
 605-25 Revenue Recognition - Multiple Element Arrangements 
 
 715-30 Defined Benefit Plans - Pension
 718  Share-Based Payment 
 730  Research and Development 
 730-20 Research and Development Arrangements 

 805  Business Combinations  
 810  Consolidation 
 810  Noncontrolling Interests 
 810  Consolidation of Variable Interest Entities, SFAS 167 
 
 815  Derivatives and Hedging Overview 

 820  Fair Value Measurements  
 820  Fair value when the markets are not active, FSP FAS 157-4
 825  Fair Value Option 

 830  Foreign Currency Matters 
 830-20 Foreign Currency Transactions 
 830-30 Translation of Financial Statements 
 835  Interest 
 835-20 Capitalization of Interest 
 835-30 Imputation of Interest 

 840  Leases 
 840-20 Operating Leases 
 840-30 Capital Leases 
 840-40 Sale-Leaseback Transactions
 845  Nonmonetary Transactions 

 855  Subsequent Events 
 860-20 Sale of Financial Assets, SFAS 166 
 860-50 Servicing Assets and Liabilities, SFAS 156 

 985-20 Costs of software to be sold  


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