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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
Q

Ethics

A

Moral principles that guide the conduct of individuals

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26
Q

Expense recognition principle

A

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

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27
Q

Expenses

A

Amounts used to generate revenue; assets used up or services consumed in the process of generating revenues

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28
Q

Faithful representation

A

A characteristic of financial reports that pertains to information accurately reflecting an entity’s economic activity or condition

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29
Q

Fees earned

A

Revenue from providing services

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30
Q

Financial accounting

A

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

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31
Q

Financial Accounting Standards Board (FASB)

A

The authoritative body that has the primary responsibility for developing accounting principles

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32
Q

Financial statements

A

Financial reports that summarize the effects of events on a business

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33
Q

Financing activities

A

Activities by which a company obtains funds to start and operate the company

34
Q

Fiscal year

A

The annual accounting period adopted by a business

35
Q

Generally accepted accounting principles (GAAP)

A

Generally accepted guidelines for the preparation of financial statements

36
Q

General-purpose financial statements

A

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
Q

Going concern assumption

A

An assumption that requires that financial reports be prepared assuming that the entity will continue operating in the future

38
Q

Historical 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

39
Q

Income statement

A

A summary of the revenue and expenses for a specific period of time, such as a month or a year

40
Q

Interest revenue

A

Earnings received for interest

41
Q

International Accounting Standards Board (IASB)

A

An organization that issues International Financial Reporting Standards for many countries outside the United States

42
Q

Investing activities

A

Activities by which a company acquires long-term assets for use in the operating activities of the company

43
Q

Liabilities

A

The rights of creditors that represent debts of the business

44
Q

Limited liability company (LLC)

A

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
Q

Managerial (or management) accounting

A

The branch of accounting that uses both historical and estimated data in providing internal users (management) with information relevant to decision making

46
Q

Manufacturing business

A

A type of business that changes basic inputs into products that are sold to individual customers

47
Q

Measurement principle

A

A principle that requires that amounts be objective and verifiable

48
Q

Monetary unit assumption

A

An accounting assumption that requires that financial reports be expressed in a single monetary unit, or currency

49
Q

Natural business year

A

A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle

50
Q

Net income (or net profit)

A

The amount by which revenues exceed expenses

51
Q

Net loss

A

The amount by which expenses exceed revenues

52
Q

Operating activities

A

Activities by which a company generates revenues from customers

53
Q

Owner’s equity

A

The equity for a proprietorship, partnership, or a limited liability company

54
Q

Partnership

A

An unincorporated business form consisting of two or more persons conducting business as co-owners for profit

55
Q

Prepaid expenses

A

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
Q

Private accounting

A

The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization

57
Q

Profit

A

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
Q

Proprietorship

A

A business owned by one individual

59
Q

Public accounting

A

The field of accounting where accountants and their staff provide services on a fee basis

60
Q

Public Company Accounting Oversight Board (PCAOB)

A

A new oversight body for the accounting profession that was established by the Sarbanes-Oxley Act

61
Q

Ratio of liabilities to stockholders’ equity

A

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
Q

Relevant

A

A characteristic of financial reports that pertains to information having the potential to impact decision making

63
Q

Rent revenue

A

Earnings from property that is leased to others for use

64
Q

Report form

A

A form of balance sheet with the “Liabilities” and “Stockholders’ Equity” sections presented below the “Assets” section

65
Q

Retail business

A

A type of business that purchases products from other businesses and sells them to customers

66
Q

Retained earnings

A

The stockholders’ equity created from business operations through revenue and expense transactions; an account representing the net income retained in a corporation

67
Q

Retained earnings statement

A

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
Q

Revenue

A

Increases in owner’s equity as a result of providing services or selling goods to customers

69
Q

Revenue recognition principle

A

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
Q

Sales

A

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
Q

Sarbanes-Oxley Act (SOX)

A

An act passed by Congress to restore public confidence and trust in the financial statements of companies

72
Q

Securities and Exchange Commission (SEC)

A

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
Q

Service business

A

A business providing services rather than products to customers

74
Q

Statement of cash flows

A

: A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year

75
Q

Statement of stockholders’ equity

A

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
Q

Stockholders’ equity

A

The ownership rights of stockholders in a corporation; the stockholders’ rights to the assets in a corporation

77
Q

Timeliness

A

A secondary characteristic of financial information that requires distribution of financial reports in time to influence a user’s decision

78
Q

Time period assumption

A

An accounting assumption that allows a company to report its economic activities on a regular basis for a specific period of time

79
Q

Understandability

A

A secondary characteristic of financial information that requires clear and concise financial reports that facilitate user interpretation and analysis

80
Q

Understandability

A

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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