Chapter 1 Flashcards
Identifying (Accounting Functions)
Select transactions and events
Recording (Accounting Functions)
Input, measure, log
Communicating (Accounting Functions)
Prepare, analyze, and interpret
Accounting Principles
Measurement
Full Disclosure
Revenue Recognition
Expense Recognition
Accounting Assumptions
Going Concern
Monetary Unit
Time Period
Business Entity
Accounting Constraint
Cost-benefit
Measurement Principle (Cost Principle)
Accounting information is based on actual cost. Cost is measured on a cash or equal-to-cash basis.
Revenue Recognition Principle
Revenue is recognized:
1. when goods or services are provided to customers
2. at the amount expected to be received from the customer
Expense Recognition Principle (Matching Principle)
A company records the expenses it incurred to generate the revenue reported.
Full Disclosure Principle
A company reports the details behind financial statements that would impact users’ decisions. Disclosures are found in footnotes on statements.
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 (ex. months or years).
Business Entity Assumption
A business is accounted for separately from other business entities and its owner.
Sole Prop
- 1 Owner
- No additional business income tax
- Unlimited liability
- NOT a separate legal entity
- Business ends with owner death or choice
Partnership
- 2 or more partners
- No additional business income tax
- Unlimited liability
- NOT a separate legal entity
- Business ends with partner death or choice
Corporation
- 1 or more shareholders
- Additional corporate income tax
- Limited liability
- Separate legal entity
- Indefinite
LLC
- 1 or more members
- No additional business income tax
- Limited liability
- Separate legal entity
- Indefinite
Assets
Resources a company owns or controls, which are expected to yield future benefits.
Ex: cash, supplies, equipment, land, and accounts receivable
Liabilities
Represent creditors’ claims on assets. These claims are obligations to provide assets, products, or services to others.
EX: wages, accounts payable, notes, taxes payables
Equity
The owner’s claim on assets. Equals assets minus liabilities.
Includes Owner Capital, Owner Withdrawals, Revenues, and Expenses
Accounting Equation
Income Statement
Describes a company’s revenues and expenses and computes net income or loss over a period of time.
Statement of Owner’s Equity
Explains changes in owner’s equity from owner investments, net income/loss, and any withdrawals over a period of time.
Balance Sheet
Describes a company’s financial position (types and amounts of assets, liabilities, and equity) at a point in time.
Statement of Cash Flows
Identifies cash inflows (receipts) and cash outflows (payments) over a period of time.
Return on Assets
