Chapter 1 Flashcards
Resources a company owns or controls
Assets
An asset that promises a future inflow of resources
A receivable
Examples of (blank) are cash, supplies, equipment, land & accounts receivable..
Assets
Creditors’ claims on assets
Liabilities
A (blank) is a liability that promises a future outflow of resources.
payable
The owner’s claim on assets & is equal to assets minus liabilities.
Equity
(Blank) is also called net assets or residual (blank).
Equity
Accounting equation formula
Assets = Liabilities + Equity
Expanded accounting equation
Assets = Liabilities + Owner, Capital - Owner, Withdrawals + Revenues - Expenses
The (blank) applies to all transactions & events, to all companies & organizations & to all points in time.
Accounting equation
(Blank) are inflows of cash & other net assets from owner contributions, which increase equity.
Owner investments
(Blank) are outflows of cash & other assets to owners for personal use, which reduce equity.
Owner withdrawals
(Blank) increase equity (via net income) from sales of products & services to customers; ex: sales of products or consulting services provided
Revenues
(Blank) decrease equity (via net income) from costs of providing products & services to customers; ex: advertising, utilities & insurance fees.
Expenses
(Blank) increases from owner investments & revenues.
Equity
Withdrawals & expenses decrease (blank)
Equity
Equity consists of 4 parts. What are they?
Owner, Capital; Owner, Withdrawals; Revenues; Expenses
Shareholders, boards of directors, nonmanagerial employees, regulators & voters are (blank).
External users
Purchasing managers are (blank).
Internal users
The fraud triangle shows 3 factors that push a person to commit fraud. What are those factors?
Opportunity, pressure or incentive & rationalization
What act requires documentation & verification of internal controls & emphasizes effective internal controls?
Sarbanes-Oxley Act (SOX)
Clawback Mandates recovery (clawback) of excessive pay & Whistleblower SEC pays whistleblowers 10% to 30% of sanctions exceeding $1M are 2 provisions for what act?
Dodd-Frank Wall Street Reform & Consumer Protection Act or Dodd-Frank
GAAP
Generally accepted accounting principles
Financial accounting is governed by concepts & rules known as (blank).
GAAP
FASB
Financial accounting standards board
Sets GAAP from the SEC
FASB
US government agency that oversees proper use of GAAP by companies that sell stock & debt to the public
Securities & Exchange Commission (SEC)
FASB conceptual framework
Objectives, qualitative characteristics, elements & recognition & measurement
IASB
International Accounting Standards Board (IASB)
Who issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices?
IASB
The assumptions, concepts & guidelines for preparing financial statements
General principles
Detailed rules used in reporting business transactions & events; they’re described as we encounter them
Specific principles
Accounting principle that accounting information is based on actual cost
Measurement principle (cost principle)
Accounting principle where revenue is recorded 1. when goods or services are provided to customers & 2. at the amount expected to be received from the customer
Revenue recognition principle
Accounting principle that a company records the expenses it incurred to generate the revenue reported. Ex: rent for office space
Expense recognition principle (matching principle)
Accounting principle that a company reports the details behind financial statements that would impact users’ decisions; often in the footnotes of statements
Full disclosure principle
Accounting assumption that accounting information presumes that the business will continue operating instead of being closed or sold. Ex: property is reported at cost instead of liquidation value
Going-concern assumption
Accounting assumption that transactions & events are expressed in money units. Ex: US dollar or Mexican peso
Monetary unit assumption
Accounting assumption that the life of a company can be divided in units of time like months or years & useful reports can be prepared for those units.
Time period assumption
Accounting assumption that a business is accounted for separately from other business entities & its owner
Business entity assumption
