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ACG 2021
Block 3 Definitions
Block 3 definitions Flash Cards: https://materia.ucf.edu/play/Ogmhc/block-3-definitions
Chapter 8
Liability - A present responsibility to sacrifice assets in the future due to a transaction or other
event that happened in the past.
Current liability – payable within one year
Long-term Liability – Payable after one year
Accounts payable - Amounts owed for products or services purchased on account
Short-term notes payable - used to borrow cash or purchase asset and due within one year
Unearned revenue - Business receives cash before services or products are provided to
customers.
CPLTD Amount of long-term debt principal payable within the next 12 months
Sales Tax Payable - sales taxes collected from customers to be remitted periodically to the state
and local governments
Deferred taxes - Net income and taxable income often differ because of differences in financial
accounting and tax accounting rules.
Contingent liability - An existing, uncertain situation that might result in a loss.
Warranty expense - Based on the matching principle, the company needs to record warranty
expense in the same accounting period as the sale.
Warranty payable - represents the liability account set up when warranty expense is recognized
and is used to account for warranty work performed in the future.
Chapter 9
Bond - Formal debt instrument that obligates the borrower to repay a stated amount, referred to
as the principal or face amount, at a specified maturity date.
Secured Bonds – backed by collateral
Unsecured bonds - not backed by collateral
Serial bonds – bond issue matures in installments
Term bonds – bond issue matures on a single date.
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Callable Bond - borrower can pay off bond early at a specified call price.
Convertible bonds – lender can convert bonds into a specified number of shares of common
stock.
Stated Rate – (rate on the face of the bond) the rate ‘stated’ in the bond contract
Market Rate – (also known as the effective interest rate) true interest rate used by investors to
value bond issue.
Par Bond Issuance - stated interest rate equals the market interest rate. The bond is issued for
face value of bonds.
Premium Bond Issuance – stated interest rate exceeds the market interest rate. The bond is issued
for more than the face value of bonds.
Discount Bond Issuance – stated interest rate is below the market interest rate. The bond is
issued for less than the face value of bonds.
Bond Carrying Value - The balance in the bonds payable account.
The effective interest method for bonds - provides an ‘amortization’ of the discount (or
premium) over the term of the bond so that the bond payable account equals face value at
maturity.
Cash Interest Payment (Credit to Cash account) - Formula for effective interest rate method =
Face Value * Stated Interest * Time Period
Bond Interest Expense (Debit the expense account) - Formula for effective interest rate method =
Carrying Value * Market Interest * Time Period
Long-term Debt – debt that matures in over 12 months.
Operating Leases: This type of a lease is similar to a rental.
Capital Leases: Occurs when a lessee buys an asset and borrows the money through a lease to
pay for the asset.
Chapter 10
Paid in Capital – Total amount stockholders have invested in the corporation, including common
stock, preferred stock, and additional paid in capital.
Earned Capital - Amount of earnings the corporation has retained
Treasury Stock - Corporation’s stock that is reacquired
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Common stock – Basic form of stock issued by corporation
4 rights of shareholders - Right to vote; Right to receive dividends; Right to share in distribution
of assets; and Preemptive right
Preferred Stock - Has advantages over common: Receive dividends first, Receive assets first in
liquidation, and Shareholders earn a fixed dividend
Par value of stock - Arbitrary amount assigned to share of stock in the articles of incorporation.
Retained Earnings - Represents the earnings retained in the corporation – earnings not paid out
as dividends to stockholders.
Dividends - Distribution to the shareholders of a corporation usually based on earnings
3 dates for issuing dividends – declaration date, date of record, and payment date.
Large stock dividend – stock dividend in excess of 25% of the shares outstanding – recorded at
par value from retained earning
Small Stock dividend - stock dividend of 25% or less of the shares outstanding – recorded at
market value.
Chapter 11
Indirect Cash Flow Method – begin with net income and then list adjustments to net income, in
order to arrive at operating cash flows.
Operating activities - Include cash receipts and cash payments for transactions relating to
revenue and expense activities (income statement, current assets, and current liabilities)
Investing activities - Company makes investments involving the purchase and sale of long-term
assets using cash
Financing activities - Inflows and outflows of cash resulting from the external financing of a
business (Long-term Debt and Stockholders’ Equity)
Non-cash activities - transactions that do not impact cash and will typically only involve longterm assets, long-term liabilities, and stockholders’ equity.
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