Chapter 1 Flashcards
On the balance sheet, Assets =
Liabilities + Owner’s Equity
The balance sheet is also called?
the statement of financial position
For each transaction, the accountant determines three things. They are?
- which specific accounts the transaction effects
- whether it increases or decreases each account balance
- the amount of the change in each account balance
The process of identifying, recording, and summarizing economic information and reporting it to decision makers
accounting
The field of accounting that serves external decision makers, such as stockholders, suppliers, banks, and government agencies
financial accounting
The field of accounting that serves internal decision makers, such as top executives, department heads, college deans, hospital administrators, and people at other management levels within an organization
management accounting
A document prepared by management and distributed to current and potential investors to inform them about the company’s past performance and future prospects
annual report
A document that U.S. companies file annually with the SEC. It contains the company’s financial statements
Form 10-K
A financial statement that shows the financial status of a business entity at a particular instant in time
balance sheet (statement of financial position)
Assets = Liabilities + Owner’s Equity
balance sheet equation
Economic resources that a company expects to help generate future cash inflows or help reduce future cash outflows
assets
Economic obligations of the organization to outsiders, or claims against its assets by outsiders
liabilities
Promissory notes that are evidence of a debt and state the terms of payment
notes payable
The owner’s claims on an organization’s assets, or total assets less total liabilities
owner’s equity
An organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit
entity
Any event that both affects the financial position of an entity and that an accountant can reliably record in money terms
transaction
An asset that a company expects to provide services for more than 1 year
long-lived asset
A summary record of the changes in a particular asset, liability, or owner’s equity
account
Goods held by a company for the purpose of sale to customers
inventory
Buying or selling on credit, usually by just an “authorized signature” of the buyer
open account
A liability that results from a purchase of goods or services on open account
account payable
A transaction that affects more than two accounts
compound entry
A person or entity to whom a company owes money
creditor
A business with a single owner
sole proprietorship
A form of organization that joins two or more individuals together as co-owners
partnership
A business organization that is created by individual state laws
corporation
A feature of the corporate form of organization whereby corporate creditors (such as banks or suppliers) ordinarily have claims against the corporate assets only, not against the personal assets of the owners
limited liability
A corporation that sells shares in its ownership to the public
publicly owned
A corporation owned by a family a small group of shareholders, or a single individual, in which shares of ownership are not publicly sold
privately owned
Formal evidence of ownership shares in a corporation
capital stock certificate (stock certificate)
Owners’ equity of a corporation. The excess of assets over liabilities of a corporation
stockholders’ equity (shareholder’s equity)
The total capital investment in a corporation by its owners both at and subsequent to the inception of business
paid-in capital
How is owner’s equity for proprietorships and partnerships listed on the balance sheet?
as Capital
How is owner’s equity listed for corporations on the balance sheet?
as stockholder’s equity or shareholder’s equity
Who decides which accounting principles are generally accepted in the United States?
the Financial Accounting Standards Board (FASB)
The FASB calls its ruling on GAAP ________?
FASB Statements
The minimum steps that an auditor must take in examining the transactions and financial statements before he/she can issue an opinion are called?
GAAS
What is the main measure of profitability for a company?
its net income, or sales less its expenses
What are the two most popular methods to measure income?
accrual basis and cash basis
What is the current standard for income measurement and the best basis for measuring economic performance?
the accrual basis
Recognition of revenues is a test for determining whether to record revenues in the financial statements of a given period. To be recognized, revenues must meet two criteria. They are:
- They must be earned
2. They must be realized
What are the two types of expenses in every accounting period?
- expenses linked with revenues earned during that period
2. expenses linked with the time period itself
What types of expenses are naturally linked with revenues?
Product costs, cost of goods sold and sales commissions
When are product costs recognized?
they are realized or matched to the revenues they help produce
When are period costs recognized?
In the period in which the company incurs them
What are some examples of period costs?
rent and administrative expenses
