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Accounting Principles 1 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What is the Account formula

A

A= L+Eq or A-L= Eg
Assets equals liabilities plus Equity or Assets minus Liabilities equals Equity

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2
Q

What’s does IFRS stand for ?

A

International financial reporting standards

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3
Q

What does IASB stand for?

A

International Accounting Standards Board

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4
Q

What does SEC stand for?

A

Securities and Exchange Commission

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5
Q

What does FASB stand for?

A

Financial accounting standard board

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6
Q

What does GAAP stand for ?

A

Generally accepted accounting principles

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7
Q

What is the definition of GAAP

A

Concepts and rules that govern accounting

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8
Q

What are External Users

A

Accounting information do not directly run the company and limited access to its accounting information
Example: lenders, shareholders,voters suppliers

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9
Q

What are Internal Users ?

A

Accounting information directly manage the company
Example: purchasing managers,HR managers, CEO

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10
Q

What is Accounting?

A

It is information and measurement system that identifies,records,and communicates a company’s business activities.

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11
Q

What is Recordkeeping/Bookkeeping?

A

It is a recording of all transactions and events.

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12
Q

What is the difference between financial accounting and managerial accounting?

A

Financial accounting focuses on the needs of external users . Managerial accounting focuses on the needs of internal users.

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13
Q

What is the Fraud triangle?

A

It’s the three factors that pushes someone to commit fraud .

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14
Q

What are the three factors in the Fraud Triangle?

A

Opportunity, Pressure , Rationalization.

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15
Q

What are Internal controls ?

A

Procedures to protect assets, ensure reliable accounting, promote efficiency and uphold company policies.

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16
Q

What are Auditors?

A

People that verify the effectiveness of internal control

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17
Q

What are Ethics in accounting?

A

Beliefs that separate right from wrong .

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18
Q

What is the Conceptual framework for the FASB and their definitions

A

•Objectives -provide information useful to investors
•Qualitative characteristics -require info that has relevance and faithful representation
•Elements -define items
•Recognition and measurement -set criteria for a item to be recognized

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19
Q

What are the four general principles?

A

•Measurement principle (cost principle)
•Revenue recognition principle
•Expense recognition principle (matching principle)
•Full disclosure principle

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20
Q

Define Measurement Principle

A

Accounting information is based on actual cost.

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21
Q

Define Revenue recognition principle

A

Revenue is recognized (1) when goods and services are provided to customers (2) the amount expected to be received from customer .

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22
Q

Define Expense Recognition principle

A

A company record the expenses it incurred to generate the revenue reported.

23
Q

Define Full disclosure principle

A

A company reports the details behind financial statements that would impact users’ decisions.

24
Q

What are the four Accounting Assumptions?

A

•Going-concern assumption
• Monetary unit assumption
•Time period assumption
•Business Entity assumption

25
Q

Define Going-concern assumption

A

Information assumes that the business will continue to operate instead of being closed or sold

26
Q

Define Monetary Unit assumption

A

Transactions and events are expressed in monetary or money units
Ex: U.S dollar and Mexican peso

27
Q

Define Time period assumption

A

The life of the company can be divided into time periods and useful reports can be prepared for those periods.
Ex months , years

28
Q

Define Business entity assumption

A

A business is accounted for separately from other business entities and its owner(s).

29
Q

What are the 4 common business entities?

A

• sole proprietorship
•partnership
•corporation
•Limited Liability Company (LLC)

30
Q

What is a sole proprietorship and its Attributes?

A

• one owner , easy setup
• no additional business income tax
•unlimited liability (owner is personally responsible for the company’s debts)
• not a separate legal entity
•Business ends with owner’s death or choice.

31
Q

What is a Partnership and its attributes?

A

• two or more called partners, easy set up
• no additional business income tax
•unlimited liability (partners are jointly responsible for the company’s debts)
• not a separate legal entity
•Business ends with owner’s death or choice.

32
Q

What is a Corporation and its Attributes?

A

•1 or more called shareholders;can get many investors by selling stocks or shares of corporate ownership
•additional corporate income tax.
•Limited liability. Owners are not liable for corporate acts and debts
• separate entity with same rights and responsibilities as a person
•indefinite

33
Q

Define Limited Liability Company and its attributes

A

•1or more called members
• no additional income tax
• Limited liability, owners are not personally liable for LLC debts
• separate entity with same rights and responsibilities as a person
• indefinite

34
Q

What is Cost-Benefit constraint/ cost constraint?

A

Information disclosed by an entity must have benefits to the user that are greater than the costs of providing it

35
Q

What are Assets?

A

Resources a company owns or controls

36
Q

What are Liabilities?

A

A creditor’s claim on assets

37
Q

What is Equity?

A

The owner’s claim on assets and is equal to assets minus liabilities.

38
Q

What is the Expanded Accounting Equation?

A

Assets= liabilities +Contributed Capture + retained earnings or
Assets = liabilities + common stock-dividends +revenue-expenses

39
Q

What is Common stock?

A

Reflects inflow of cash or other net assets from shareholders in exchange for stock.

40
Q

What is Dividends ?

A

Outflow of cash and other assets to shareholders that reduces equity

41
Q

What is Revenue?

A

Increase equity from sales of products and services to customers
Ex: sales of products, services provided, rented facilities, and commissions from services.

42
Q

What is Expenses?

A

Decrease in equity from cost of providing products and services to customers
Ex: cost of employees time , use of supplies, advertising,utilities,insurance fees.

43
Q

What are External transactions?

A

Exchanges of value between two entities

44
Q

What is Internal transactions?

A

Exchanges within an entity which may or may not affect the accounting equation.

45
Q

What are Events?

A

Happenings that affect the accounting equation and are reliably measured

46
Q

What are the four Financial Statements?

A

• Income Statement
• Statement of retained earnings
• Balance Sheet
•Statement of cash flows

47
Q

What is the purpose of the Income statement?

A

Describes a company’s revenues and expenses and computes net income or loss over a period of time Ex:
Revenues - expenses = net income

48
Q

What is the purpose of a Statement of retained earnings?

A

Explains changes in retained earnings from net income/loss and any dividends over a period of time Ex:
Beg. Retained earnings +net income- dividends = End . Retained earnings

49
Q

What is the purpose of a Balance Sheet?

A

Describes a company’s financial position (types and amounts of assets,liabilities, and equity) at a point in time
Ex: accounting equation

50
Q

What is the purpose of Statement of cash flows ?

A

Identifies cash flows (receipts) and cash outflows ( payments) over a period of time ex: +/- operating C.F
+/- Investing C.F
+/- Financing C.F
__________________
Change in cash
( C.F= cash flow)

51
Q

What is Net income?

A

Occurs when revenue exceeds expenses

52
Q

What is Net Loss?

A

Occurs when expenses exceed revenues

53
Q

What’s is the Return of Assets( ROA) and the equation?

A

Helps evaluate if management is effectively using assets to generate net income. Net income
Return on assets = —————————
Average total assets

54
Q

what is a Summary of transactions?

A

Financial effects of the transactions using the expanded accounting equation.

Accounting Principles 1 (2 decks)

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