Chapter 1 Flashcards
Environment and Theoretical Structure of Financial Accounting
Financial Statements (4)
- Balance Sheet (Statement of Financial Position)
- Income Statement (Statement of Operations)
- Statement of Cash Flows
- Statement of Shareholders’ Equity
Rate of Return
Initial Investment
Accrual Accounting
Measures income according to the entity’s accomplishments and resource sacrifices during the period from transactions related to providing goods and services to customers, regardless of when cash is received or paid.
Cash-Basis Accounting
Measures income as the difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.
Net Operating Cash Flow
Difference between cash receipts and cash disbursements from providing goods and services.
(Cash-basis accounting only)
Net Income
All revenues and gains minus all expenses and losses reported in the income statement.
G.A.A.P.
Generally Accepted Accounting Principles
Set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financial statements and related notes.
Economic Entity Assumption
Presumes that economic events can be identified specifically with an economic entity.
Going Concern Assumption
In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely.
Periodicity Assumption
Allows the life of a company to be divided into artificial time periods to provide timely information.
Revenues
Inflows of assets or settlements of liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.
Historical Cost
Original transaction value
(measurement attribute of GAAP)
Depreciated (or Amortized) Cost
Reduces historical cost to reflect depreciation (or amortization) recognized to date.
Net Realizable Value
Estimated selling prices of inventory in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation
Current Cost
The costs that would be incurred to purchase or reproduce an asset
Present Value (PV)
Today’s equivalent of a particular amount in the future, after backing out the time value of money
Fair Value
Bases measurements on the price that would be received to sell assets or transfer liabilities in an orderly market transaction
