Accounting-Chapter 1 Flashcards
What is accounting?
The Information system that measures business activities
Financial Accounting
Provides information for external decision makers
Managerial Accounting
Focuses on information for internal decision makers
Creditor
Anyone to whom a business owes money
CPA (Certified Public Accountants)
licensed professional accountants who serve the general public
CMA;s
certified professionals who specialize in accounting and financial management knowledge.
Economic Entity Assumption
States that an organization that stands apart as a separate economic unit. It is a separate entity from its owner(s)
Cost Principle
States acquired assets and service should be recorded at actual cost.
Going concern Assumption
Assumes the entity will remain in operation for the foreseeable future
Monetary Unit Assumption
Assumes that items on the financial statements are to be measures in terms of monetary unit.
Accounting Equation
Assets= Liabilities+ Equity
Assets
Economic resources that are expected to benefit the business in the future. What the business owns or has control of.
Liabilities
Debts that are owed by creditors showing they have a stake in the business
Equity
What the owner’s claim is in the business.
What is left over after company has paid liabilities i.e. its net worth.
Owner’s capital
What the owner contributed to a business
Expenses
Cost of selling goods and services
Owner’s withdrawals
payments to the owner. Usually cash, taken from the equity
Equity Equation
Owner’s capital- Owner’s withdrawals + Revenues- Expenses
Net Income
Result of operations that occur when total revenues are greater than total expenses
Net Loses
results of operations when total cost exceeds total revenues.
Transactions
Any event that affects the position of the business and can be measured reliably in dollar amounts.
Accounts Payable
Short-term liability that will be paid in the future. (Purchasing on account)
Accounts receivable`
the right to receive payment in the future from customers for goods or services sold or services performed.
Financial Statements
business documents that are used to Communicate information needed to make financial decisions
4 types of Financial Statements
1) Income statement
2) State of Owner’s equity
3) Balance Sheet
4) Statement of cash flows
Income statement
Tells is profitable or not. Tells business’ net income or net loss
Statement of owner’s equity
Tells how the business uses earnings. Shows the changes in the owner’s capital account for a specific period.
Balance Sheet
Tells the number of assets of business and who owns them (creditors or owners) Reports the assets, liabilities, and owner’s equity of the business at a specific date
Statement of Cash Flow
Tells whether or not a business generates enough cash to pay bills. Statement of cash flow reports on a business’s cash receipts and cash payments for a specific period.
Return of Assets (ROA)
Measures how profitable company is at using assets. Net Income divided by Average Total assets.
Average total assets=(Beginning total assets+ Ending assets) divided by 2.
