CH1 - Intro to Accounting and Business Flashcards
What makes accounting information reliable?
If it is dependable and free from error or bias.
Three Objectives of Accounting
- Help users make investment and credit decisions 2. Helps users determine risk 3. Informs users about the economic resources of and claims against the enterprise
Difference between financial accounting and managerial accounting?
Financial accounting primarily serves the needs of investors and creditors. Managerial accounting serves the needs of internal constituents -managers and staff- and helps support their decision making
Four primary financial statements?
Balance sheet, income statement, statement of changes in equity, and statement of cash flow
The Accounting Equation
Assets = Liabilities + Owner’s Equity
Assets
A company’s resources - things the company owns
Examples of Assets
Cash, accounts receivable, inventory, land, investments, equipment, buildings
Liabilities
A company’s obligations - amounts the company owes
The Balance Sheet is also known as?
Statement of financial position
GAAP
Generally Accepted Accounting Principals
GAAS
Generally Accepted Auditing Standards
The Accounting Cycle - Step 1
- Identify and gather transaction information
The Accounting Cycle - Step 2
Analyze and Journalize Transactions
The Accounting Cycle - Step 3
Post to ledgers
The Accounting Cycle - Step 4
Prepare unadjusted trial balance
The Accounting Cycle - Step 5
Make adjustments
The Accounting Cycle - Step 6
Prepare financial statements
The Accounting Cycle - Step 7
Close the books
A snapshot of a company’s financial position at a particular point in time
The Balance Sheet
Examples of liabilities
Accounts payable, salaries and wages payable, interest payable, income taxes payable
Account Form
The form of balance sheet that resembles the basic format of the accounting equation
Account Payable
The liability created by a purchase on account
Account Receivable
A claim against the customer created by selling merchandise or services on credit
Accounting
An information system that provides reports to stakeholders about the economic activities and condition of a business
Balance Sheet
A list of the assets, liabilities, and owner’s equity as of a specific date, usually at the close of the last day of a month or a year
Business
An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers
Business Entity Concept
A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business
Certified Public Accountant (CPA)
Public accountants who have met a stat’es education, experience, and examination requirements
Corporation
A business organized under state or federal statutes as a separate legal entity
Cost Concept
A concept of accounting that determines the amount initially entered into the accounting records for purchases
Earnings
The amount by which revenues exceed expenses
Expenses
Assets used up or services consumed in the process of generating revenues
Fees Earned
Revenue from providing services
Financial Accounting
The branch of accounting that is concerned with recording transactions using GAAP for a business or other economic unit and with a periodic preparation of various statements from such records
Financial Accounting Standards Board (FASB)
The authoritative body that has the primary responsibility for developing accounting principles
Generally Accepted Accounting Principals (GAAP)
Generally accepted guidelines for the preparation of financial statements
General-purpose Financial Statements
A type of financial accounting report that is distributed to external users.
Interest Revenue
Money received for interest
International Accounting Standards Board (IASB)
An organization that issues International Financial Reporting Standards for many countries outside the United States
Limited Liability Company (LLC)
A business form consisting of one or more persons or entities filing an operating agreement with a state to conduct business with limited liability to the owners, yet treated as a partnership for tax purposes
Managerial Accounting
The branch of accounting that uses both historical and estimated data in providing information that management uses in conducting daily operations, in planning future operations, and in developing overall business strategies
Matching Concept
A concept of accounting in which expenses are matched with the revenue generated during a period by those expenses
Net Income (Net Profit)
The amount by which revenues exceed expenses
Objectivity Concept
A concept of accounting that requires accounting records and the data reported in financial statements to be based on objective evidence
Partnership
An unincorporated business form consisting of two or more persons conducting business as co-owners for profit
Private Accounting
The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization
Profit
The difference between amount received from customers and amount paid to provide services to customers
Proprietorship
A business owned by one individual
Public Accounting
The field of accounting where accountants and their staff provide services on a fee basis
Public Company Accounting Oversight Board (PCAOB)
A new oversight body for the accounting profession that was established by the Sarbanes-Oxley Act
Ratio of Liabilities to Owner’s Equity
A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders’ equity
Revenue
Increase in owner’s equity as a result of selling services or products to customers
Sales
The total amount charged customers for merchandise sold, including cash sales and sales on account
Sarbanes-Oxley Act (SOX)
An act passed by Congress to restore public confidence and trust in the financial statements of companies
Securities and Exchange Commission (SEC)
An agency of the U.S. Government that has authority and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public
Unit of Measure Concept
A concept of accounting requiring that economic data be recorded in dollars
