Chapter 1-Intro to Accounting Flashcards
Bookkeeping
Only the recording of economic events and therefore only one part of accounting
3 basic principles of accounting
Identifies, records and communicates economic events
Sarbanes-Oxley Act (SOX)
Intended to. Reduce unethical corporate behavior and decrease I likelihood of scandal
GAAP
Generally accepted accounting principles
FASB
Financial accounting standards board
Accounting standards setting body
SEC
Securities and Exchange commission
Us agency which oversees financial markets and standards boards
IFRS
International financial reporting standards
Standards set by IASB
Accounting is turning towards IFRS instead of GAAP
Cost principle
Records assets at their cost
Even if asset increases in value a year later, still go by beginning cost
Fair value principle
Assets and liabilities reported at fair value (price received to sell assets or settle liabilities)
Monetary Unit Assumption
Include in accounting records only transactions which can be expressed in monetary terms
Economic entity assumption.
Activities of the business are kept separate from activity of the owners
Proprietorship
Business owned by one person
Partnership
Two or more owners
Corporation
Organized into separate legal entity under the law and divides ownership into stocks
Basic accounting equation
Assets=liabilities + owners equity
Assets
Resources a business owns (cash, equipment, land, accounts receivable)
Liabilities
Claims against assets (debts and obligations)
*“payable” accounts
Owners equity
Ownership claim on total assets
Investments by owner
Assets put into business by owner
Recorded in owners capital
Revenues
Increase in OE from business activities
Drawings
Cash/assets removed by owner for personal use
Decreases owners equity
Expenses
Cost of assets consumed
Decreases in OE from business operations
Expanded accounting equation
Assets =liabilities + (owners capital-drawings+revenues-expenses)
Income statement
Revenues and expenses resulting in net income or loss for a specific time period
