Page 179 - Accounting Principles (A Business Perspective)

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Current assets Cash and other assets that a business can convert into cash or use up in one year or one
operating cycle, whichever is longer.
Current liabilities Debts due within one year or one operating cycle, whichever is longer. The payment of
current liabilities normally requires the use of current assets.
Current ratio Calculated by dividing current assets by current liabilities.
Dividends payable Amounts declared payable to stockholders and that represent a distribution of income.
Goodwill An intangible value attached to a business, evidenced by the ability to earn larger net income per
dollar of investment than that earned by competitors in the same industry.
Income Summary account A clearing account used only at the end of an accounting period to summarize
revenues and expenses for the period.
Income taxes payable Are the taxes payable to the state and federal governments by a corporation based
on its income.
Intangible assets Noncurrent, nonmonetary, nonphysical assets of a business.
Interest payable Interest that has accumulated on debts, such as notes or bonds. This accrued interest has
not been paid at the balance sheet date because it is not due until later.
Interest receivable Arises when interest has been earned but not collected at the balance sheet date.
Land Ground the company uses for business operations. Land could include ground on which the company
locates its business buildings and that used for outside storage space or a parking lot.
Leasehold improvements Are any physical alterations made by the lessee to the leased property when
these benefits are expected to last beyond the current accounting period.
Leaseholds Rights to use rented properties.
Long-term assets Assets that are on hand or used by a business for a relatively long time. Examples
include long-term investments; property, plant, and equipment; and intangible assets.
Long-term investment Usually securities of another company held with the intention of (1) obtaining
control of another company, (2) securing a permanent source of income for the investor, or (3) establishing
friendly business relations.
Long-term liabilities Debts such as a mortgage payable and bonds payable that are not due for more than
one year.
Marketable securities Temporary investments that a company makes to earn a return on idle cash.
Merchandise inventory Goods held for sale.
Note An unconditional written promise to pay to another party the amount owed either when demanded or
at a certain date.
Notes payable Unconditional written promises by a company to pay a specific sum of money at a certain
future date.
Office equipment Includes computers, copiers, FAX machines, and phone answering machines.
Office furniture Includes file cabinets, desks, chairs, and shelves.
Operating cycle The time it takes to start with cash, buy necessary items to produce revenues (such as
materials, supplies, labor, and/or inventories), sell services or goods, and receive cash by collecting the
resulting receivables.
Paid-in capital Shows the capital paid into the company as the owners' investment.
Patent A right granted by the federal government authorizing the owner of an invention to manufacture a
product or to use a process for a specific time.
Post-closing trial balance A trial balance taken after the closing entries have been posted.
Prepaid expenses Assets awaiting assignment to expense. Items such as rent, insurance, and supplies that
have been paid for but from which all of the benefits have not yet been realized (or consumed). Prepaid
expenses are classified as current assets.
Property, plant, and equipment Assets with useful lives of more than one year that a company acquired
for use in a business rather than for resale; also called plant assets or fixed assets.
Retained earnings Shows the cumulative income of the company less the amounts distributed to the
owners in the form of dividends.
Salaries payable Amounts owed to employees for services rendered.

Accounting Principles: A Business Perspective 180 A Global Text