capital lease: A lease that meets at least one of the four criteria established by GAAP. A capital lease requires recording the lease as an asset and a liability.
capital stock: A broad description for the ownership interest in a corporation. The true ownership interest in a corporation is called common stock, which is a type of capital stock.
cash basis of accounting: A type of accounting in which revenue is recorded as earned when received or collected and expenses are recorded as incurred when paid. The cash basis of accounting is not a GAAP method.
cash equivalents: Short-term assets that are readily converted to cash and whose value will not change.
cash flow: Cash into and out of a company.
cash flows from financing activities: Cash flows from the issuance of capital stock, debt securities, dividend payments, repayment of debt, and purchase of treasury stock.
cash flows from investing activities: Cash flows from the purchases and sales of productive assets and other companies’ debts (bonds and notes) and equity (common and preferred stocks issued by other companies).
cash flows from operating activities: Cash flows from day-to-day, income-producing activities. They include the activities that are not in the categories of investing and financing.
cash receipts journal: A special journal where all cash receipts are recorded when received. It takes the place of the general journal as the initial place where cash receipts are recorded in the accounting system.
cash receipts: Cash received by a company.
cash: Currency or any instrument that banks will accept for deposit and immediate credit to a company’s account.
EX: Check, money order, and bank draft.
certified public accountant (CPA): A license granted by state governments to individuals who have passed the Uniform CPA Exam and have met the requirements regarding work experience and education.
CFO: See chief financial officer.
chart of accounts: A listing of the accounts in the general ledger of the accounting system. The chart of accounts is ordered with balance sheet accounts (assets, liabilities, stockholders’ equity), followed by income statement accounts (revenues, expenses, gains, losses).
chief executive officer (CEO): The top officer of the corporation who is charged with executing the policies set by the board of directors.
chief financial officer (CFO): The top financial executive of a corporation.
chief operating officer (COO): A top corporation official usually reporting directly to the CEO and responsible for the operations of the corporation.
classified balance sheet: A balance sheet with groupings or categories such as current assets; property, plant, and equipment; current liabilities; and long-term liabilities.
closing entries: Entries made at the end of a period to transfer net income or loss to retained earnings and to bring to zero the balances of all the temporary accounts that include all revenues and expenses.
collection period: The time (in days) for a company’s accounts receivable to be collected.
common stock: An investment that is evidence of ownership in a corporation. Common stockholders elect the corporation’s directors and share in the distribution of earnings of the company through the distribution of dividends.
common-size financial statement: A form of balance sheet that shows each item’s amount as a percentage of total assets.
comparability: A quality of accounting information that allows the user to make a comparison of financial statements of one entity to the financial statements of another entity.
compilation: Financial statements prepared by an accountant without reviewing or auditing the amounts. The accountant relies on the client’s amounts when preparing the income statement and balance sheet format and does not provide any assurances regarding the values.
comprehensive income: The total of the net income plus a few items that affect the owner’s equity but are not reported on the income statement.
EX: Unrealized gains and losses on some investments and unrealized gains and losses involving foreign currency are elements added to or subtracted from net income to derive comprehensive income.
condensed financial statements: Financial statements that are in summary form by reducing the size of the statement to a few major lines of information.
conservatism: An underlying assumption of financial statements and a guiding principle of accounting that requires accountants to choose accounting methods that are least likely to overstate assets or inflate income. This leads to the general rule that unfavorable events are recorded immediately. The recording of apparently favorable events must wait until the favorable outcome is assured.
consistency: A quality of accounting information that allows users of the financial statements to compare reporting of one accounting period to another. It refers to the firm’s use of the same accounting methods for the same transactions from period to period.
contingent liability: A potential liability that results because of a past event and won’t be realized until some future event occurs.
EX: A lawsuit that has not yet been settled.
continuity assumption:
The assumption that the entity will continue in existence into the foreseeable future. This assumption is part of the reason why asset values are not at liquidation values but mostly historical cost (with a few exceptions where lower of cost or market value applies); also called the
going concern assumption.
contra asset: An account that is associated with a particular asset but its balance is contra to, or opposite of, the asset’s balance. When preparing a balance sheet, the contra account’s balance is subtracted from its associate asset’s balance to derive the net asset value.
EX: If fixed assets are recorded at $100,000 and the accumulated depreciation account balance is $25,000, the accumulated depreciation account is the contra asset account and the net value to be shown on the balance sheet for the fixed assets is $75,000.
contract: An agreement between two or more parties that creates enforceable rights and obligation.
contributed capital: Cash and sometimes other assets contributed to the business by the owners.
contribution margin: On a per-unit basis, the contribution margin is price minus variable cost per unit. On a company-wide basis, it is sales minus total variable costs.
controller: The top accounting officer of a company.
convertible bonds: Bonds that bondholders may convert into capital stock.
convertible preferred stock: Preferred stock that can be exchanged for a specified number...