Accounts receivable turnover

A measure of the speed with which sales on account are collected; the ratio of net credit sales to average receivables.

Average collection period

The ratio of 365 days to the accounts receivable turnover; also called the number of days’ sales in receivables.

Classified financial statement

A format by which revenues and expenses on the income statement, and assets and liabilities on the balance sheet, are divided into groups of similar accounts and a subtotal is given for each group.

Current assets

Assets consisting of cash, items that normally will be converted into cash within one year, and items that will be used up within one year.

Current liabilities

Debts that must be paid or otherwise satisfied within one year.

Current ratio

A relationship between current assets and current liabilities that provides a measure of a firm’s ability to pay its current debts (current ratio = current assets ÷ current liabilities).

Gross profit

The difference between net sales and the cost of goods sold (gross profit = net sales − cost of goods sold).

Gross profit percentage

The amount of gross profit from each dollar of sales (gross profit percentage = gross profit ÷ net sales).

Inventory turnover

The number of times inventory is purchased and sold during the accounting period (inventory turnover = cost of goods sold ÷ average inventory).

Liquidity

The ease with which an item can be converted into cash; the ability of a business to pay its debts when due.

Long-term liabilities

Debts of a business that are due more than one year in the future.

Multiple-step income statement

A type of income statement on which several subtotals are computed before the net income is calculated.

Plant and equipment

Property that will be used in the business for longer than one year.

Reversing entries

Journal entries made to reverse the effect of certain adjusting entries involving accrued income or accrued expenses to avoid problems in recording future payments or receipts of cash in a new accounting period.

Single-step income statement

A type of income statement where only one computation is needed to determine the net income (total revenue − total expenses = net income).

Working capital

The measure of the ability of a company to meet its current obligations; the excess of current assets over current liabilities.