Ch1 - Accounting in Business Flashcards
Return on Assets Equation
Return on Assets = Net Income/Average total assets
Users of Accounting Information
External and Internal users
Four accounting Principles
Measurement principle, Revenue Recognition Principle, Expense Recognition Principle, Full Disclosure principle
Measurement Principle
Accounting information is based on actual cost.
Revenue recognition principle
Revenue is recognized when goods or services are provided and at the amount expected to be received from the customer
Expense recognition principle
A company records expenses it incurred to generate the revenue reported
Full disclosure princple
A company reports the details behind financial statements that would impact users’ decision
Four accounting assumption
Going-concern assumption, Monetary unit assumption, Time period assumption, business entity assumption
Going-concern assumption
Accounting information presumes that the business will continue operating instead of being closed or sold.
Monetary unit assumption
Transactions and events are expressed in monetary units.
Time period assumption
The life of a company can be divided into time periods
Business entity assumption
A business is accounted for separately from other business entities and its owner
Cost-benefit constraint
Information disclosed by an entity must have benefits to the user that are greater than the costs of providing it.
Assets
Resources a company owns or controls. Resources are expected to yield future benefits.
Liabilities
Creditor’s claims on assets.
Equity
Owner’s claim on assets and is equal to assets minus liabilities.
Accounting Equation
Assets = Liabilities + Equity
Four parts of Equity
Common stock, dividends, revenues, expenses
External Transaction
Exchanges of value between two entities
Internal transaction
Exchanges of value within an entity
The four financial statements
Income statement, statement of retained earnings, balance sheet, statement of cash flows
