Accounting Concepts Flashcards
Accounting Equation
Assets = Liabilities + Owners Equity
What is owners equity
investment of company owner + accumulated profits
Balance sheet
snapshot of company’s financial situation
What is asset liquidity
how soon expected to be converted to cash
Current assets
converted to cash, sold, used up ONE YEAR
Examples of current assets
cash, inventory, accounts receivable
Long term assets
Not converted to cash within a year
Examples of long term assets
fixed assets (PPE, land)
patents, trademarks, good will
Current Liabilities
paid within ONE YEAR (Account payable)
Long term liabilities
Not due for more than one year (bonds, notes, mortgages)
On balance sheet, what is owners equity
Common stock + retained earnings
What is income statement
how much profit or loss company had during a quarter or year
Net Income Equation
Revenue - Expenses
Gross Profit or Gross Margin Equation
Net Sales - COGS
What will profitable company distribute to its owners
Dividends
GAAP Revenue Recognition
recording revenue when entity satisfies performance obligation = transfers good to customers
GAAP Matching
recording revenue and expenses in same period
GAAP Consistency
consistent accounting principles
GAAP Full disclosure
all information needed for proper evaluation
GAAP Going Concern
reporting entity may have trouble continuing in business
GAAP Departure - Conservatism
method that avoids overstating assets/understating liabilities
GAAP Departure - Application of Judgement
change procedure if strict adherence will produce misleading financial statements
GAAP Departure - Materiality
strict adherence only when item has significant effects on financial statements
