Chapter 1 Flashcards
Accounting
Information and measurement system that identifies, records, and communicates relevant information about a company’s business activities.
Accounting equation
Equality involving a company’s assets, liabilities, and equity; Assets = Liabilities + Equity; also called the balance sheet equation.
Assets
Resources a business owns or controls that are expected to provide current and future benefits to the business.
Audit
Analysis and report of an organization’s accounting system, its records, and its reports using various tests.
Auditors
Individuals hired to review financial reports and information systems; internal auditors assess a company’s internal controls, while external auditors evaluate the fairness of financial statements.
Balance sheet
Financial statement listing types and dollar amounts of assets, liabilities, and equity at a specific date.
Bookkeeping
Part of accounting involving the recording of transactions and events, either manually or electronically; also called recordkeeping.
Business entity assumption
Principle requiring a business to be accounted for separately from its owner(s) and any other entity.
Common stock
Corporation’s basic ownership share; also referred to as capital stock.
Conceptual framework
The basic concepts that underlie the preparation and presentation of financial statements, guiding the development of standards and resolving accounting issues.
Corporation
A business that is a separate legal entity under state or federal laws; owners are referred to as shareholders or stockholders.
Cost constraint
The idea that the benefit of a disclosure exceeds the cost of making that disclosure.
Cost principle
Accounting principle prescribing financial statement information to be based on actual costs incurred in transactions.
Cost-benefit constraint
The notion that the benefit of a disclosure exceeds the cost of that disclosure.
Data analytics
The process of analyzing data to identify meaningful trends; in accounting, it helps in making informed business decisions.
Data visualization
Graphical presentation of data to help people understand its significance and make inferences.
Equity
Owner’s claim on the assets of a business after deducting liabilities; also called net assets or owner’s equity.
Ethics
Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest.
Events
Happenings that affect an organization’s financial position and can be reliably measured.
Expanded accounting equation
Expanded version of Assets = Liabilities + Equity; for a noncorporation, Equity = Owner’s capital − Owner’s withdrawals + Revenues − Expenses.
Expense recognition (or matching) principle
Prescribes expenses to be reported in the same period as the revenues they helped generate.
Expenses
Outflows or using up of assets as part of operations to generate sales.
External transactions
Exchanges of economic value between one entity and another entity.
External users
Persons using accounting information who are not directly involved in running the organization.
Financial accounting
Area of accounting primarily serving external users.
Financial Accounting Standards Board (FASB)
Independent group responsible for setting accounting rules.
Full disclosure principle
Prescribes financial statements to report all relevant information about an entity’s operations and financial condition.
Generally accepted accounting principles (GAAP)
Rules specifying acceptable accounting practices.
Going-concern assumption
Principle prescribing financial statements to reflect the assumption that the business will continue operating.
Income statement
Financial statement subtracting expenses from revenues to yield net income or loss over a period; includes any gains or losses.
Internal controls or internal control system
Policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and ensure adherence to policies.
Internal transactions
Activities within an organization that affect the accounting equation.
Internal users
Persons directly involved in managing an organization and using its accounting information.
International Accounting Standards Board (IASB)
Group identifying preferred accounting practices and encouraging global acceptance; issues International Financial Reporting Standards (IFRS).
International Financial Reporting Standards (IFRS)
Set of international standards explaining how transactions and events are reported; issued by IASB.
Liabilities
Creditors’ claims on assets; involves probable future payment of assets, products, or services due to past transactions.
Limited liability company (LLC)
Business form combining features of a corporation and a limited partnership; provides limited liability to members and allows active participation in management.
Managerial accounting
Area of accounting serving decision-making needs of internal users; also called management accounting.
Measurement principle
Prescribes financial statement information and transactions to be based on relevant measures of valuation; also called the cost principle.
Members
Owners of an LLC, with rights and responsibilities specified in the operating agreement and state regulations.
Monetary unit assumption
Principle assuming transactions and events can be expressed in money units.
Net income
Amount earned after subtracting all necessary expenses from sales for a period; also called income, profit, or earnings.
Net loss
Excess of expenses over revenues for a period.
Owner investments
Assets put into the business by the owner.
Partnership
Unincorporated association of two or more persons to pursue a business for profit as co-owners.
Proprietorship
Business owned by one person not organized as a corporation; also called sole proprietorship.
Recordkeeping
Part of accounting involving the recording of transactions and events; also called bookkeeping.
Retained earnings
Cumulative income less losses and dividends.
Return on assets (ROA)
Ratio reflecting operating efficiency; calculated as net income divided by average total assets for the period.
Revenue recognition principle
Principle prescribing that revenue is recognized when goods or services are delivered to customers.
Revenues
Gross increase in equity from business activities earning income; also called sales.
Securities and Exchange Commission (SEC)
Federal agency setting reporting rules for organizations selling ownership shares to the public.
Shareholders
Owners of a corporation; also called stockholders.
Shares
Equity of a corporation divided into ownership units; also called stock.
Sole proprietorship
Business owned by one person that is not a corporation; also called proprietorship.
Statement of cash flows
Financial statement listing cash inflows and outflows during a period, categorized by operating, investing, and financing activities.
Statement of retained earnings
Report of changes in retained earnings over a period, accounting for net income, dividends, and any prior period adjustments.
Stock
Equity of a corporation divided into ownership units; also called shares.
Stockholders
Owners of a corporation; also called shareholders.
Time period assumption
Assumption that an organization’s activities can be divided into specific time periods such as months, quarters, or years.
