Chapter 1 Flashcards
Accounting Definition
The system that measures business activities, processes that information into reports and financial statements, and communicates the findings to decision makers.
Financial Statements
Business documents that report financial information about an entity to persons and organizations outside the business.
Investors
A person or business that provides capital (usually money) to a business with the expectation of receiving financial gain.
Creditors
Businesses or individuals to which payment is owed.
Financial Accounting
The branch of accounting that provides information to people outside the business.
Management Accounting
The branch of accounting that generates information for internal decision makers of a business.
Proprietorship
An unincorporated business with a single owner.
Partnership
An unincorporated business with two or more owners.
Limited Liability Partnership (LLP)
A form of partnership in which each partner’s personal liability for the business’s debts is limited to a certain amount.
Corporation
A business owned by shareholders that begins when the federal or provincial government approves its articles of incorporation. A corporation is a legal entity, an “artificial person,” in the eyes of the law.
Shareholder
A person or company who owns one or more shares of stock in a corporation.
Generally Accepted Accounting Principles (GAAP)
Accounting guidelines, formulated by the Accounting Standards Board, that specify the standards for how accountants must record, measure, and report financial information.
Private Enterprise
A corporation that does not offer its shares for sale to the public
Publicly Accountable Enterprise
A corporation that has its shares traded on a stock exchange or for which a strong public interest exists.
Economic Entity Assumption
The accounting assumption that an organization or a section of an organization stands apart from other organizations and individuals as a separate economic unit for accounting purposes.
Going Concern Assumption
An accounting assumption that the business will continue operating in the foreseeable future.
Stable Monetary Unit Assumption
Accountants’ basis for ignoring the effect of inflation and making no adjustments for the changing value of the dollar.
Cost Principle of Measurement
States that assets and services are recorded at their purchase cost and that the accounting record of the asset continues to be based on cost rather than current market value.
Cost-Benefit Constraint
An accounting constraint that says the benefits of the information produced should exceed the costs of producing the information.
Materiality
The accounting constraint that says information should be reported if it is material to the user—that is, if knowing it might affect a decision maker’s decision.
Accounting Equation
Assets = Liabilities + Owner’s Equity/Shareholder’s Equity
Asset
An economic resource a business owns that is expected to be of benefit in the future.
Prepaid Expense
A category of assets that are paid for first, then expire or get used up in the near future.
Liability
An economic obligation (a debt) payable to an individual or an organization outside the business.
Note Payable/Receiveable
A Liability/Asset evidenced by a written promise to make a future payment/receive cash in the future.
Owner’s Equity
In a proprietorship, the claim of an owner of a business to the assets of the business. Also called capital.
Partner’s Equity
The name for owner’s equity when there is more than one owner. In this case, the owners are called partners.
Shareholder’s Equity
The name for owner’s equity when the business is a corporation. In this case, the owners are called shareholders.
Dividends
Distributions by a corporation to its shareholders
Transaction
An event that has a financial impact on a business and that can be reliably measured.
Income Statement
A list of an entity’s revenues, expenses, and net income or net loss for a specific period. Also called the statement of earnings or statement of operations.
Net Income
Excess revenue over expenses
Net Loss
Excess expenses over revenue
Statement of Owner’s Equity
A summary of the changes in an entity’s owner’s equity during a specific period.
Balance Sheet
A list of an entity’s assets, liabilities, and owner’s equity (proprietorship) or shareholders’ equity (corporation) as of a specific date. Also called the statement of financial position.
Cash Flow Statement
Reports cash receipts and cash payments classified according to the entity’s major activities: operating, investing, and financing.
