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Summary & Financial Accounting Glossary
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Summary and Glossary for the midterm and final exam of Financial Accounting (in the first year)
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AccountingCash basis = Revenue is recorded when cash is received and expenses are recorded when cash is
paid.
Accrual accounting = assets, liabilities, revenues, and expenses should be recognized when the
transaction that causes them occurs, not necessarily when cash is paid or received.
Revenue principle = Revenues recorded when earned (goods or services have been delivered,
persuasive evidence of a customer payment arrangement, price is fixed or determinable, collection is
reasonably assured).
Matching principle = resources consumed to earn revenues in an accounting period should be
recorded in that period, regardless of when cash is paid. Kosten die in een periode gemaakt zijn
moeten aan die periode toegerekend worden.
Hoofdstuk 4:
Deferred revenues = previously recorded liabilities that were created when cash was received in
advance, and that must be reduced for the amount of revenue actually earned during the period.
Accrued revenues = revenues that have been earned but not yet recorded because will be paid after
the services are performed or goods are delivered.
Deferred expenses = previously recorded assets, such as prepaid rent, Supplies, and Equipment, that
were created when cash was paid in advance and that must be reduced for the amount of expense
actually incurred during the period through use of the asset.
Accrued expenses = Expenses that have been incurred but not yet recorded because cash will be paid
after the goods or services are used.
Hoofdstuk 6:
Sales returns = mogelijkheid om producten terug te brengen, tegenovergestelde van sales (verkochte
producten innemen).
Allowances = kortingen aanslaan
Receivables turnover = how many times average receivables are recorded and collected for the year.
Average collection period = Indicates the average time it takes a customer to pay its accounts.
Hoofdstuk 7
Net income effects: managers prefer to report higher earnings for their companies
Income tax effects: managers prefer to pay the least amount of taxes allowed by law as late as
possible.
LIFO conformity rule: If lifo is used on the income tax return, it must also be used to calculate
inventory and cost of goods sold for financial statements.
Lower of cost or market: het laagste van de aankoopprijs of de huidige marktprijs.
Replacement cost = the current purchase price for identical goods.
Hoofdstuk 8
Acquisition cost
Cost allocation methods
Straight line depreciation
Units of production
Accelerated depreciation
Component approach
Hoofdstuk 9
Quick ration: while a high quick ratio normally suggests good liquidity, too high a ratio suggests
inefficient use of resources.
,Accounts payable = trade accounts payable
Accrued liabilities = accrued expenses
Notes payable =
Deferred revenues = unearned revenues
Accounts payable turnover = measures how quickly the company pays its accounts payable.
Working capital = changes in working capital accounts are important to managers and analyst
because they have a direct impact on cash flows from operating activities reported on the statement
of cash flows.
Operating lease = short-term lease; no liability or asset recorded.
Capital lease = long-term lease; meets one of 4 criteria: results in recording an asset and a liability.
Hoofdstuk 11
Issued shares = outstanding shares + treasury shares
Treasury shares = Issued shares that have been reacquired by the corporation.
Outstanding shares = Issued shares that are owned by stockholders.
Earnings per share (EPS) = winst per aandeel
Stockholders’ equity = contributed capital (common stock, par value + capital in excess of par value,
agio) + retained earnings
Initial public offering (IPO) = The first time a corporation sells stock to the public.
Sale of stock in secondary markets = transactions between to investors that do not affect the
corporation’s accounting records.
Preferente aandelen: hebben extra stemrechten of een vast dividendpercentage.
Current dividend preference = the current preferred dividends must be paid before paying any
dividends to common stock.
Cumulative dividend preference = any unpaid dividends from previous years must be paid before
common dividends are paid.
Cash flows financing activities
Issuance of capital stock +
Purchase of treasure stock -
Sale of treasury stock +
Payment of cash dividends -
Hoofdstuk 12
A company may invest in the securities of another company to:
- earn a return on idle funds (passive investments) fair value (marktwaarde)
- Influence the other company’s policies and activities Equity method (NVW)
- Control the other company Consolidated statement
Passive investments = made to earn a high rate of return on funds that may be needed for future
purposes. Investments in debt securities are always considered passive investments.
Investment in stock for significant influence = Investments made with the intent of exerting
significant influence over another corporation. The ability of the investing company to have an
important impact on the operating and financial policies of another company (20% - 50% outstanding
shares)
, Investments in stock for control = Investments made with the intent to exert control over another
corporation. The investing company has the ability to determine the operating and financial policies
of another corporation (>50% outstanding shares).
Hoofdstuk 13:
Operating activities (cash flows) = cash inflows and outflows directly related to earnings from normal
operations.
Investing activities (cash flows) = cash inflows and outflows related to the acquisition or sale of
productive facilities and investments in the securities of other companies.
Financing activities (cash flows) = Cash inflows and outflows related to external sources of financing
(owners and creditors) for the enterprise.
Transactions that cause gains and losses should be classified on the statement of cash flows as
operating, investing, or financing activities.
Chapter 6:
Bad debt expense = allowance 31/12 – allowance 1/1 + write-offs
Receivable turnover: Measures the effectiveness of credit-granting and –collection activities.
Cash equivalents: short-term investments with original maturities of three months or less that are
readily convertible to cash and whose value is ulikely to change.
Raw materials inventory: includes items acquired for the purpose of processing into finished goods.
Work in progress inventory: includes goods in the process of being manufactured.
Finished goods inventory: includes manufactured goods that are complete and ready for sale.
CGS = beginning inventory + purchase of merchandise – ending inventory
Inventory costing method:
1. Specific identification
2. Weighted average
3. FIFO
4. LIFO
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