Top Secretary Accounts Officer Interview Preparation Guide

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A liability account is a general ledger account in which a company records its debt, obligations, customer deposits and customer prepayments, certain deferred income taxes, etc. that are the result of a past transaction. Common liability accounts under the accrual method of accounting include Accounts Payable, Accrued Liabilities (amounts owed but not yet recorded in Accounts Payable), Notes Payable, Unearned Revenues, Deferred Income Taxes (certain temporary timing differences), etc.

A company's revenues are amounts it has earned as the result of business activities such as selling merchandise or performing services. Under the accrual method of accounting, revenues are reported on the income statement in the period in which they are earned even when a dependable customer is allowed to pay 60 days later. In this example, when the revenues are earned the company will credit a revenues account and will debit the asset account Accounts Receivable.

The accrual method of accounting reports revenues on the income statement when they are earned even if the customer will pay 30 days later. At the time that the revenues are earned the company will credit a revenue account and will debit the asset account Accounts Receivable. When the customer pays 30 days after the revenues were earned, the company will debit Cash and will credit Accounts Receivable.
The accrual method of accounting also requires that expenses and losses be reported on the income statement when they occur even if payment will take place 30 days later. For example, if a company has a $15,000 repair done on December 15 and the vendor allows for payment on January 15, the company will report a repair expense and a liability of $15,000 as of December 15. On January 15 the company will credit Cash and will debit the liability account.

Balance sheet accounts are one of two types of general ledger accounts. Income statement accounts make up the other type. Balance sheet accounts are used to sort and store transactions involving assets, liabilities, and owner's or stockholders' equity. Examples of a corporation's balance sheet accounts include Cash, Accounts Receivable, Investments, Buildings, Equipment, Accumulated Depreciation, Notes Payable, Accounts Payable, Payroll Taxes Payable, Paid-in Capital, Retained Earnings, etc.
Balance sheet accounts are described as permanent or real accounts because at the end of the accounting year the balances in these accounts are not closed. Instead, the end-of-the-accounting-year balances will be carried forward to become the beginning balances in the next accounting year. This is different from the income statement accounts, which begin each accounting year with zero balances.

The statement of cash flows is one of the main financial statements. It is to accompany the income statement, balance sheet, and statement of stockholders' equity. The statement of cash flows (also known as the cash flow statement) reports.
★ The major sources and uses of cash during the period of the income statement.
★ A reconciliation of the change in an organization's cash and cash equivalents (which are reported on the beginning and ending balance sheets).
★ Supplementary information including the amount of income taxes paid, the amount of interest paid, and significant noncash investing and financing activities (such as issuing common stock in exchange for land).

Net usually refers to the combination of positive and negative amounts. For example, the amount of net sales is the combination of the amount of gross sales (a positive amount) and some negative amounts such as sales returns, sales allowances, and sales discounts. Hence, if gross sales are 990 and sales returns are 10, sales allowances are 5, and sales discounts 20, the net sales are 955.

The income statement is a key financial statement which reports on a company's profitability during a relatively short period of time such as the past year, month, 13 weeks, etc. The heading of the income statement informs the reader of the period covered.
The main components of the income statement are:
★ Revenues
★ Expenses
★ Certain gains and losses

This financial statement begins with the bottom line of the income statement and then lists the items considered to be other comprehensive income. Some of these items involve currency translation, hedging, available-for-sale securities, and pensions.

This financial statement is also known as the statement of operations, statement of earnings, or income statement. It reports the corporation's revenues, expenses, gains and losses (except for items stipulated as other comprehensive income) for a period of time such as a year, quarter, 13 months, etc.

This statement reports the major causes for the change in cash and cash equivalents during the accounting period. The cash flows are presented as operating, investing, or financing activities.

This statement of financial position reports a corporation's assets, liabilities and stockholders' equity as of the final instant of the date shown in its heading (December 31, January 31, June 30, etc.)

A noncurrent asset is an asset that is not likely to turn to unrestricted cash within one year of the balance sheet date. (This assumes that the company has an operating cycle of less than one year.)
A non-current asset is also referred to as a long-term asset.
Non-current assets are reported under the following balance sheet headings:
★ Investments (long-term)
★ Property, plant and equipment
★ Intangible assets
★ Other assets

This financial statement is often presented as the statement of shareholders' equity, statement of equity, statement of changes in stockholders' equity, etc. It reports all of the changes in stockholders' equity which occurred during the accounting period.

A fiscal year usually refers to an accounting year that does not end on December 31. (The accounting year of January 1 through December 31 is usually referred to as a calendar year.) Some examples of the fiscal years used by U.S. corporations include:
★ The 12 months of February 1 through January 31
★ The 12 months of October 1 through September 30
★ The 12 months of June 1 through May 31
★ The 52 weeks (four 13-week quarters) ending on the Saturday closest to January 31 (This will require an occasional fiscal year of 53 weeks since 52 weeks X 7 days = 364 days vs. 365 days per year.)

Sales refers to the revenues earned when a company sells its goods, products, merchandise, etc. (If a company sells one of its non-current assets that was used in its business, the amount received is not recorded in its Sales account.)
The amounts recorded at the time of the sales transaction is also known as gross sales since there may be subsequent subtractions for sales returns, sales allowances, and early payment discounts. (Gross sales minus these subtractions results in the amount of net sales.)

These are the amounts earned through the sale of goods and the providing of services.

These include the cost of goods sold, SG&A expenses, and interest expense.

Assets are sometimes defined as resources or things of value that are owned by a company. Some examples of assets which are obvious and will be reported on a company's balance sheet include: cash, accounts receivable, inventory, investments, land, buildings, and equipment.

Gross profit is net sales minus the cost of goods sold. (Some people use the term gross margin and gross profit interchangeably. Others use gross margin to mean the gross profit ratio or the gross profit as a percentage of net sales.)
Gross profit is presented on a multiple-step income statement prior to deducting selling, general and administrative expenses and prior to non-operating revenues, non-operating expenses, gains and losses.

An accounting loss on the sale of a business segment minus the income taxes that were saved (avoided, sheltered) because the loss was also deductible on the company's income tax return.

An accounting period is a period of time such as the 12 months of January 1 through December 31, or the month of June, or the three months of July 1 through September 30. It is the period for which financial statements are prepared. For example, the income statement and the cash flow statement report the amounts occurring during the accounting period, and the balance sheet reports the amounts of assets and liabilties as of the final moment of the accounting period.

Revenues and gains minus expenses and losses.

The recorded amount of accounts receivable minus the allowance for doubtful accounts.

The combination of the cash inflows and the cash outflows from a company's operations (activities outside of its investing and financing activities).

The recorded costs of the tangible non-current assets used in the business minus the related accumulated depreciation.