ABA flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Accounting Equation
- Assets equal liabilities plus owners' equity. Every recorded transaction keeps this equality intact, so the balance sheet always balances after posting.
- Accrual Basis
- Revenue is recorded when earned and expenses when incurred, independent of when cash changes hands. This differs from cash-basis accounting.
- Debit and Credit Rules
- Debits increase assets and expenses; credits increase liabilities, equity, and revenue. Each entry has equal total debits and credits.
- FIFO Inventory Method
- First-in, first-out assigns the oldest inventory costs to cost of goods sold, leaving the most recent costs in ending inventory.
- Straight-Line Depreciation
- Annual depreciation equals cost minus salvage value, divided by useful life in years. It spreads the depreciable base evenly across periods.
- Revenue Recognition Steps
- Identify the contract, identify performance obligations, determine transaction price, allocate price to obligations, then recognize revenue as each obligation is satisfied.
- Allowance for Doubtful Accounts
- A contra-asset account estimating receivables not expected to be collected. It reduces net receivables on the balance sheet and records bad debt expense.
- Classified Balance Sheet
- Separates assets and liabilities into current and noncurrent categories, using a one-year or operating-cycle cutoff to define current.
- Common-Size Statements
- Each line item is shown as a percentage of a base: total assets on the balance sheet, net sales on the income statement.
- Horizontal Trend Analysis
- Each period's amount is expressed as a percentage of a chosen base-year amount, revealing growth or decline over time.
- Full Disclosure Principle
- Financial statements must include notes disclosing accounting policies, contingencies, subsequent events, and other information needed for fair interpretation.
- Reportable Segment Thresholds
- A segment is reportable if revenue, profit or loss, or assets reach 10 percent of the combined totals, subject to the 75 percent coverage test.
- Subsequent Events Disclosure
- Events after the balance sheet date that provide evidence of conditions existing at that date require recognition; others require disclosure only.
- Closing Entries
- Entries that transfer balances of temporary accounts (revenues, expenses, dividends) to retained earnings, resetting them to zero for the next period.
- Adjusted Trial Balance
- A listing of account balances after all adjusting entries are posted. It supplies the figures used to prepare the financial statements.
- Current Ratio
- Current assets divided by current liabilities. It measures short-term liquidity and the ability to cover obligations due within one year.
- Quick Ratio
- Cash, marketable securities, and receivables divided by current liabilities. It excludes inventory and prepaids from the numerator.
- Retained Earnings Rollforward
- Ending retained earnings equal beginning retained earnings plus net income minus dividends declared during the period.
- Operating Cash Flow Indirect Method
- Starts with net income, adds noncash charges such as depreciation, and adjusts for changes in current operating assets and liabilities.
- Investing Activities Section
- Reports cash flows from acquiring or disposing of long-term assets and investments, such as equipment purchases and property sales.
- Marginal vs Average Tax Rate
- The marginal rate applies to the next dollar of taxable income; the average rate equals total tax divided by total taxable income.
- Temporary Book-Tax Difference
- A difference between book and taxable income that reverses in later periods, creating deferred tax assets or liabilities.
- Permanent Book-Tax Difference
- An item recognized for book or tax purposes but never the other, such as tax-exempt interest. It creates no deferred tax.
- Deferred Tax Liability
- Arises from taxable temporary differences, where future taxable income will exceed book income as the difference reverses.
- Standard Deduction
- A fixed deduction amount set by filing status and indexed for inflation. Taxpayers compare it with itemized deductions and use the larger.
- Filing Status Categories
- Classification such as single, married filing jointly, married filing separately, or head of household. It sets brackets and deduction amounts.
- Contribution Margin
- Sales revenue minus variable costs. It measures the amount available to cover fixed costs and then generate operating profit.
- Break-Even Point in Units
- Fixed costs divided by unit contribution margin. It gives the sales volume at which total revenue equals total cost.
- Margin of Safety
- Actual or budgeted sales minus break-even sales. It quantifies how much sales can fall before the entity incurs a loss.
- High-Low Cost Estimation
- Variable cost per unit equals the change in cost divided by the change in activity between the highest and lowest activity levels.
- Predetermined Overhead Rate
- Estimated total manufacturing overhead divided by the estimated allocation base. It applies overhead to jobs as production occurs.
- Sunk Cost
- A cost already incurred that cannot be changed by any future decision. It is excluded from relevant-cost analysis.