Accounting 201Chapter 01 Key Words Flashcards
Consistency
The use of similar accounting procedures either over time for the same company, or across companies at the same point in time.
Corporation
An entity that is legally separate from its owners.
Cost effectiveness
Financial accounting information is provided only when the benefits of doing so exceed the costs.
Decision usefulness
The ability of the information to be useful in decision making.
Dividends
Cash payments to stockholders. Distributions by a corporation to its stockholders.
Economic entity assumption
All economic events with a particular economic entity can be identified.
Ethics
A code or moral system that provides criteria for evaluating right and wrong behavior.
Expenses
Costs of providing products and services.
Faithful representation
Accounting information that is complete, neutral, and free from material error.
Financial accounting
Measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes.
Financial Accounting Standards Board (FASB)
An independent, private body that has primary responsibility for the establishment of GAAP in the United States.
Financial statements
Periodic reports published by the company for the purpose of providing information to external users.
Financing activities
Transactions involving external sources of funding.Includes cash transactions resulting from the external financing of a business.
Generally accepted accounting principles (GAAP)
The rules of financial accounting.
Going concern assumption
In the absence of information to the contrary, a business entity will continue to operate indefinitely.
Income statement
A financial statement that reports the company’s revenues and expenses over an interval of time.
International Accounting Standards Board (IASB)
An international accounting standard-setting body responsible for the convergence of accounting standards worldwide.
International Financial Reporting Standards (IFRS)
The standards being developed and promoted by the International Accounting Standards Board.
Investing activities
Transactions involving the purchase and sale of (1) long-term resources such as land, buildings, equipment, and machinery and (2) any resources not directly related to a company’s normal operations. Includes cash transactions involving the purchase and sale of long-term assets and current investments.
Liabilities
Amounts owed to creditors.
Materiality
The impact of financial accounting information on investors’ and creditors’ decisions.
Monetary unit assumption
A unit or scale of measurement can be used to measure financial statement elements.
Net income
Difference between revenues and expenses. Difference between all revenues and all expenses for the period.
Operating activities
Transactions involving the primary operations of the company, such as providing products and services to customers and the associated costs of doing so, like utilities, taxes, advertising, wages, rent, and maintenance. Includes cash receipts and cash payments for transactions relating to revenue and expense activities.
Partnership
Business owned by two or more persons.
Periodicity assumption
The economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting.
Relevance
Accounting information that possesses confirmatory value and/or predictive value.
Retained earnings
Cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends. Represents all net income, less all dividends, since the company began.
Revenues
Amounts earned from selling products or services to customers.
Sarbanes-Oxley Act
Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX ; the act established a variety of new guidelines related to auditor-client relations and internal control procedures.
Sole proprietorship
A business owned by one person.
Statement of cash flows
A financial statement that measures activities involving cash receipts and cash payments over an interval of time. A summary of cash inflows and cash outflows during the reporting period sorted by operating, investing, and financing activities.
Statement of stockholders’ equity
A financial statement that summarizes the changes in stockholders’ equity over an interval of time. Summarizes the changes in the balance in each stockholders’ equity account over a period of time.
Stockholder’s equity
Stockholders’, or owners’, claims to resources, which equal the difference between total assets and total liabilities.
Timeliness
Information being available to users early enough to allow them to use it in the decision process.
Understandability
Users must understand the information within the context of the decision they are making.
Verifiability
A consensus among different measurers.
Accounting
A system of maintaining records of a company’s operations and communicating that information to decision makers.
Accounting equation
Equation that shows a company’s resources (assets) equal creditors’ and owners’ claims to those resources (liabilities and stockholders’ equity).
Assets
Resources owned by a company.
Auditors
Trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company’s financial statements.
Balance sheet
A financial statement that presents the financial position of the company on a particular date.
Comparability
The ability of users to see similarities and differences between two different business activities.
