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Principles of Financial Accounting > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Account payable

A

The liability created by a purchase on account

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2
Q

Account receivable

A

An asset, which is a claim against the customer created by selling merchandise or services on credit

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3
Q

Accounting

A

An information system that provides reports to stakeholders about the economic activities and condition of a business

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4
Q

Accounting assumptions

A

Assumptions that provide the framework upon which accounting standards are constructed

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5
Q

Accounting equation

A

The equation that shows the relationship among assets, liabilities, and equity; expressed as Assets = Liabilities + Equity

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6
Q

Accounting principles

A

Principles that provide the framework upon which accounting standards are constructed

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7
Q

Accounting standards

A

The rules that determine the accounting for individual business transactions

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8
Q

Accounting Standards Codification

A

An electronic database maintained by the Financial Accounting Standards Board (FASB) that contains all of the accounting standards that make up the generally accepted accounting principles (GAAP)

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9
Q

Accounting Standards Updates

A

Published changes to accounting standards that are the source of updates to the Accounting Standards Codification

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10
Q

Arm’s-length transactions

A

Transactions between two independent parties

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11
Q

Assets

A

The resources owned by a business

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12
Q

Balance sheet

A

A list of the assets, liabilities, and stockholders’ equity as of a specific date, usually at the close of the last day of a month or a year

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13
Q

Business

A

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers

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14
Q

Business entity assumption

A

A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business

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15
Q

Business transaction

A

An economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations

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16
Q

Certified Public Accountant (CPA)

A

Public accountants who have met a state’s education, experience, and examination requirements

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17
Q

Common stock

A

Certificates issued by a corporation to investors as proof of their ownership rights; an account representing the ownership rights of investors in a corporation; a class of stock issued by a corporation that bears no preference rights

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18
Q

Comparability

A

A secondary characteristic of financial information; comparability includes consistent reporting, that allows users to identify similarities and differences among reported items

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19
Q

Corporation

A

A business organized under state or federal statutes as a separate legal entity

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20
Q

Cost principle

A

A concept of accounting that states that an asset should be recorded and maintained in the accounting records at its initial transaction price

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21
Q

Data analytics

A

The science of analyzing raw data to discover patterns, identify anomalies, or gain other useful insights

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22
Q

Dividends

A

Distributions of earnings to stockholders; an account representing the distribution of a corporation’s earnings to stockholders

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23
Q

Earnings

A

The amount by which revenues exceed expenses

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24
Q

Equity

A

The rights of the owners of a business

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25
Ethics
Moral principles that guide the conduct of individuals
26
Expense recognition principle
A principle, sometimes called the matching principle, that requires expenses to be recorded in the same period as the related revenue; a concept of accounting in which expenses are matched with the revenue generated during a period by those expenses
27
Expenses
Amounts used to generate revenue; assets used up or services consumed in the process of generating revenues
28
Faithful representation
A characteristic of financial reports that pertains to information accurately reflecting an entity’s economic activity or condition
29
Fees earned
Revenue from providing services
30
Financial accounting
The branch of accounting that is concerned with recording transactions using generally accepted accounting principles (GAAP) for a business or other economic unit and with a periodic preparation of various statements from such records
31
Financial Accounting Standards Board (FASB)
The authoritative body that has the primary responsibility for developing accounting principles
32
Financial statements
Financial reports that summarize the effects of events on a business
33
Financing activities
Activities by which a company obtains funds to start and operate the company
34
Fiscal year
The annual accounting period adopted by a business
35
Generally accepted accounting principles (GAAP)
Generally accepted guidelines for the preparation of financial statements
36
General-purpose financial statements
A type of financial accounting report that is distributed to external users. The term “general purpose” refers to the wide range of decision-making needs that the reports are designed to serve
37
Going concern assumption
An assumption that requires that financial reports be prepared assuming that the entity will continue operating in the future
38
Historical cost principle
A concept of accounting that states that an asset should be recorded and maintained in the accounting records at its initial transaction price
39
Income statement
A summary of the revenue and expenses for a specific period of time, such as a month or a year
40
Interest revenue
Earnings received for interest
41
International Accounting Standards Board (IASB)
An organization that issues International Financial Reporting Standards for many countries outside the United States
42
Investing activities
Activities by which a company acquires long-term assets for use in the operating activities of the company
43
Liabilities
The rights of creditors that represent debts of the business
44
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
45
Managerial (or management) accounting
The branch of accounting that uses both historical and estimated data in providing internal users (management) with information relevant to decision making
46
Manufacturing business
A type of business that changes basic inputs into products that are sold to individual customers
47
Measurement principle
A principle that requires that amounts be objective and verifiable
48
Monetary unit assumption
An accounting assumption that requires that financial reports be expressed in a single monetary unit, or currency
49
Natural business year
A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle
50
Net income (or net profit)
The amount by which revenues exceed expenses
51
Net loss
The amount by which expenses exceed revenues
52
Operating activities
Activities by which a company generates revenues from customers
53
Owner’s equity
The equity for a proprietorship, partnership, or a limited liability company
54
Partnership
An unincorporated business form consisting of two or more persons conducting business as co-owners for profit
55
Prepaid expenses
Assets created by making advanced payments for expense items, such as insurance premiums or supplies, that will be used in the business in the future
56
Private accounting
The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization
57
Profit
The difference between the amounts received from customers for goods or services provided and the amounts paid for the inputs used to provide the goods or services
58
Proprietorship
A business owned by one individual
59
Public accounting
The field of accounting where accountants and their staff provide services on a fee basis
60
Public Company Accounting Oversight Board (PCAOB)
A new oversight body for the accounting profession that was established by the Sarbanes-Oxley Act
61
Ratio of liabilities to stockholders’ equity
A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders’ equity; a solvency ratio that measures how much of the company is financed by debt and equity, computed as total liabilities divided by total stockholders’ equity
62
Relevant
A characteristic of financial reports that pertains to information having the potential to impact decision making
63
Rent revenue
Earnings from property that is leased to others for use
64
Report form
A form of balance sheet with the “Liabilities” and “Stockholders’ Equity” sections presented below the “Assets” section
65
Retail business
A type of business that purchases products from other businesses and sells them to customers
66
Retained earnings
The stockholders’ equity created from business operations through revenue and expense transactions; an account representing the net income retained in a corporation
67
Retained earnings statement
A summary of the changes in the retained earnings in a corporation that have occurred during a specific period of time, such as a month or a year
68
Revenue
Increases in owner’s equity as a result of providing services or selling goods to customers
69
Revenue recognition principle
A concept of accounting that states that revenues are recorded when earned, which is when the services have been performed or products have been delivered to customers
70
Sales
How revenue from the sale of merchandise is recorded; the total amount charged customers for merchandise sold, including cash sales and sales on account
71
Sarbanes-Oxley Act (SOX)
An act passed by Congress to restore public confidence and trust in the financial statements of companies
72
Securities and Exchange Commission (SEC)
An agency of the U.S. government that has authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public
73
Service business
A business providing services rather than products to customers
74
Statement of cash flows
: A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year
75
Statement of stockholders’ equity
A summary of the changes in the stockholders’ equity in a corporation that have occurred during a specific period of time, such as a month or a year
76
Stockholders’ equity
The ownership rights of stockholders in a corporation; the stockholders’ rights to the assets in a corporation
77
Timeliness
A secondary characteristic of financial information that requires distribution of financial reports in time to influence a user’s decision
78
Time period assumption
An accounting assumption that allows a company to report its economic activities on a regular basis for a specific period of time
79
Understandability
A secondary characteristic of financial information that requires clear and concise financial reports that facilitate user interpretation and analysis
80
Understandability
A secondary characteristic of financial information that requires clear and concise financial reports that facilitate user interpretation and analysis

Principles of Financial Accounting (9 decks)

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