ACCT Term Exam Flashcards
“Accounting equation”
Assets = Liabilities + Equity
Assets
Resources that a company owns or controls and are expected to yield future benefits for the company.
“Audit”
The examination of whether financial statements are prepared using proper concepts and rules.
“Balance sheet”
Describe’s a company’s financial position at a point in time, typically presented in either the account form or the report form.
“Bookkeeping”
Part of accounting that involves recording transactions and events, either manually or electronically. Typically does not include the preparation of financial statements.
“Common stock”
The increase in equity representing an owner’s investment in the company. These are NOT considered revenues of the company.
“Corporation”
A separate entity with the same rights and responsibilities as a person, pays additional income taxes, issues stock to shareholders, and has an indefinite business life.
“Dividends”
Distributions, typically cash or additional stock shares, to owners of a company. These are not an expense.
“Equity”
The owner’s/shareholder’s claims on assets of the company, also called net assets.
“Expanded accounting equation”
Assets = Liabilities + Contributed capital + Retained earnings + Revenues − Expenses − Dividends.
“Expense recognition/matching principle”
Salaries are not recorded when the employees are paid, the salaries are recorded in the same period that the employee’s work generated revenue.
“Expenses”
Decrease in equity from costs of providing products and services to customers.
“Financial Accounting Standards Board (FASB)”
This group is given the task of setting concepts and rules that apply to financial reporting in the United States.
“Financial accounting”
Primarily provides information for the needs of external users.
“Generally Accepted Accounting Principles (GAAP)”
These concepts and rules govern financial accounting in the United States.
“Income statement”
This financial statement shows the overall profitability of a company for a specific period of time, such as a month, quarter, or year.
“Internal controls”
Procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company policies and include separation of duties, establishment of responsibilities, and regular independent reviews.
“Liabilities”
Creditors’ claims on an organization’s assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events.
“Materiality”
Concept that all items that are reasonably likely to impact investors’ decision-making must be recorded or reported in detail in a business’s financial statements using GAAP standards. (not relevance)
“Measurement/Cost principle”
Accounting information is measured on a cash or equal-to-cash basis. If a company receives $1,000 for services, those services are valued at $1,000.
“Net income”
Amount earned after subtracting all the expenses from all the revenues for a period.
“Retained earnings”
This is increased by revenues & gains; decreased by expenses, losses, and dividends; and is carried forward from period to period.
“Revenue recognition principle”
Prescribes that revenue is recognized when goods or services are delivered to customers.
“Revenues”
These increase equity and are generated by providing products and/or services to customers.
“Securities and Exchange Commission (SEC)”
This is a United States agency that oversees proper use of the concepts and rules by companies that sell stock and debt to the public in the United States.
“Statement of cash flows”
This is the final financial statement prepared by the company at the end of a financial period and is segregated into the sections operating, investing, and financing activities.
“Statement of retained earnings”
Explains changes in equity from net income/(loss) and any dividends over a period of time.
“Time period assumption”
The life of a company can be divided into set periods, such as months, quarters, and years, and reports are prepared for those periods.
“Account balance”
The difference between total debits and total credits for an account, including the beginning balance.
“Chart of accounts”
A list of all ledger accounts with an identification number assigned to each account.
“Classified balance sheet”
Groups permanent accounts into categories on a financial statement with current items being reported before noncurrent items.
“Credit”
The right side of an account. When a company fulfills an obligation this will increase a revenue.
“Debit”
The left side of an account. When a company obtains an asset this will increase the asset.
“Double-entry accounting”
System that requires the accounting equation remain in balance. This means each transaction has at least two accounts, at least one debit and one credit, and total debits equal total credits.
“General journal”
Used to record any transaction that the company makes to change the balance in at least two accounts. This includes the date, accounts, and amounts of all transactions.
“General ledger”
A record of all accounts used by a company and shows the beginning balance, increases, decreases, and ending balance in each of the accounts.
“Journalizing”
Recording transactions in the records of the company.
“Normal balance”
The side that increases the balance of an account.
“Payable”
Promises to pay an amount to an entity in the future for products or services that have been provided.
“Posting”
Transferring journal entry information to the ledger.
