Chapter 1 Flashcards
What is an information & measurement system that identifies, records, & communicates relevant information about a company’s business activities?
ACCOUNTING
What is the accounting or balance sheet equation?
ASSETS = LIABILITIES + EQUITY
Must always balance on both sides of the ‘=’
What are the resources a business owns or controls that are expected to provide current and future benefits to the business?
ASSETS
Who are the individuals hired to review financial reports & information systems?
AUDITORS
Which financial statement lists the types and dollar amounts of assets, liabilities, & equity at a specific date?
BALANCE SHEET
Assets Liabilities
Stockholders’ Equity
Common Stock
Retained Earnings
The part of accounting that involves recording transactions & events, either manually or electronically.
BOOKKEEPING or RECORDKEEPING
The principle that requires a business to be accounted for separately from its owner(s) and from any other entity.
BUSINESS ENTITY ASSUMPTION
What is a corporation’s basic ownership share called?
COMMON STOCK or CAPITAL STOCK
The _____________ ________________ is a set of basic concepts that underlie the preparation and presentation of financial statements for external users. It can serve as a guide for developing future standards & to resolve accounting issues that are not addressed directly in current standards using the definitions, recognition criteria, and measurement concepts for assets, liabilities, revenues & expenses.
CONCEPTUAL FRAMEWORK
The total amount of cash & other assets received from stockholders in exchange for stock.
CONTRIBUTED CAPITAL or PAID-IN CAPITAL
A business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders.
CORPORATION
The notion that the benefit of a disclosure exceeds the cost of that disclosure.
COST-BENEFIT CONSTRAINT
Accounting principle that prescribes financial statement information be based on actual costs incurred in business transactions.
COST PRINCIPLE
A corporation’s distributions of assets to its owners.
DIVIDENDS
The Act that:
- promots accountability & transparency in the financial system;
- put an end to the notion of ‘too big to fail’;
- protects taxpayers by ending bailouts; &
- protects consumers from abusive financial services.
DODD-FRANK WALL STREET REFORM & CONSUMER PROTECTION ACT
An owner’s claim on the assets of a business; equals the residual interest in an entity’s assets after deducting liabilities.
EQUITY or NET ASSETS
Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest.
ETHICS
Happenings that both affect an organization’s financial position and can be reliably measured.
EVENTS
What is the expanded accounting equation for a non-corporation?
ASSETS = LIABILITIES + [OWNER CAPITAL - OWNER WITHDRAWALS + REVENUES - EXPENSES]
* [equity]
What is the expanded accounting equation for a corporation?
ASSETS = LIABILITIES + [CONTRIBUTED CAPITAL + RETAINED EARNINGS + REVENUES - EXPENSES] for a corporation where dividends are subtracted from retained earnings
* [equity]
Outflows or using up of assets as part of operations of a business to generate sales.
EXPENSES
Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
EXPENSE RECOGNITION PRINCIPLE or MATCHING PRINCIPLE
Exchanges of economic value between one entity and another entity.
EXTERNAL TRANSACTIONS
Persons using accounting information who are not directly involved in running the organization.
EXTERNAL USERS
Area of accounting aimed mainly at serving external users.
FINANCIAL ACCOUNTING
Independent group of full-time members responsible for setting accounting rules.
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)
Principle that prescribes financial statements (including notes) to report all relevant information about an entity’s operations and financial condition.
FULL DISCLOSURE PRINCIPLE
Rules that specify acceptable accounting practices.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
Principle that prescribes financial statements to reflect the assumption that the business will continue operating.
GOING-CONCERN ASSUMPTION
Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses.
INCOME STATEMENT
Revenues
- Expenses
= Net Income (Loss)
Amount earned after subtracting all expenses necessary for and matched with sales for a period.
INCOME or NET INCOME or PROFIT or EARNINGS
Activities within an organization that can affect the accounting equation.
INTERNAL TRANSACTIONS
Persons using accounting information who are directly involved in managing the organization.
INTERNAL USERS
Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS)
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)
Set of international accounting standards explaining how types of transactions and events are reported in financial statements; IFRS are issued by the IASB
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
Creditors’ claims on an organization’s assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events.
LIABILITIES
Area of accounting aimed mainly at serving the decision-making needs of internal users
MANAGERIAL ACCOUNTING or MANAGEMENT ACCOUNTING
Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP.
MATERIALITY CONSTRAINT
Principle that prescribes financial statement information and its underlying transactions and events be based on relevant measures of valuation.
MEASUREMENT PRINCIPLE or COST PRINCIPLE
Principle that assumes transactions and events can be expressed in monetary units.
MONETARY UNIT ASSUMPTION
Excess of expenses over revenues for a period.
NET LOSS
Unincorporated association of two or more persons to pursue a business for profit as co-owners.
PARTNERSHIP
Business owned by one person that is not organized as a corporation.
PROPRIETORSHIP or SOLE PROPRIETORSHIP
Cumulative income less cumulative losses & dividends.
RETAINED EARNINGS
Monies received from an investment; often in percent form.
RETURN
Ratio reflecting operating efficiency. defined as net income / average total assets
RETURN ON TOTAL ASSETS or RETURN ON INVESTMENT
The principle prescribing that revenue is recognized when earned.
REVENUE RECOGNITION PRINCIPLE
Gross increase in equity from a company’s business activities that earn income.
REVENUES or SALES
Uncertainty about an expected return.
RISK
Corporation that meets special tax qualifications so as to be treated like a partnership for tax purposes.
S-CORPORATION
Created the Public Company Accounting Oversight Board, regulates analyst conflicts, imposes corporate governance requirements, enhances accounting & control disclosures, impacts insider transactions & executive loans, establishes new types of criminal conduct, & expands penalties for violations of federal securities laws.
SARBANES-OXLEY ACT (SOX)
Owners of a corporation
SHAREHOLDERS or STOCKHOLDERS
Equity of a corporation divided into ownership units.
SHARES or STOCK
A financial statement that lists cash inflows (receipts) and outflows (payments) during a period; arranged by operating, investing & financing
STATEMENT OF CASH FLOWS
Report of changes in retained earnings over a period; adjusted for increases (net income), for decreases (dividends & net loss), and for any prior period adjustment.
STATEMENT OF RETAINED EARNINGS
Assumption that an organization’s activities can be divided into specific time periods such as months, quarters or years.
TIME PERIOD ASSUMPTION
