Chapter 1 Flashcards
going-concern assumption
reflects assumption that the business will continue operating instead of being closed or sold
monetary unit assumption
express transactions and events in monetary, or money, units
business entity assumption
a business is accounted for separately from other business entities, including its owner
time period assumption
presumes that the life of a company can be divided into time period, such as months and years
revenue recognition principle
recognize revenue when it is earned and not when the money is received
cost principle
the acquisition cost is used to prepare the financial statements. the acquisition cost will be estimated objectively
matching principle
a company must record all its expenses incurred to generate the revenue reported
full disclosure principle
a company is required to report the details behind financial statements that would impact users’ decisions
revenues
revenues are recognized and recorded during the year when they are earned, even if they have not been received during the same period
expenses
expenses are recorded during the year when resources have been consumed, even if they are not paid for during the same fiscal year
Types of business entities
- sole proprietorship
- partnership
- corporation
sole proprietorship
owned by a single individual
partnership
owned by 2 or more individuals
corporation
ownership represented by shares of stock
owners of a corporation: shareholders/ stockholders
- not personally liable for corporate acts
advantages of a corporation
- limited liability
- continuity of life
- ease of transfer of ownership
- opportunity to raise large amounts of money
disadvantage of a corporation
double taxation
the accounting equation
A = L + SE
balance sheet
reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time
income statement
reports the revenues less the expenses of the accounting period
statement of stockholders’ equity
reports the way that net income and distribution of dividends affected the financial position of the company during the accounting period
statement of cash flows
reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing
Heading of statement
- Name of entity
- title of statement
- date of time period represented
- unit measure
Assets
- cash
- accounts receivable
- notes receivable
- inventory (to be sold)
- supplies
- prepaid expenses
- long-term investments
- equipment
- buildings
- land
- intangibles
Liabilities
- accounts payable
- accrued expenses
- notes payable
- taxes payable
- unearned revenue
- bonds payable
