Chapter 1 Key Terms and Definitions Flashcards
Learn the basic terms of Accounting.
What is Accounting ?
Information and measurement system that identifies, records, and communicates relevant information about a company’s business activities.
What is the Accounting Equation?
Equality involving a company’s assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation.
What are assets?
Resources a company owns or controls.
What is an audit?
Analysis and report of an organizations accounting system, its records, and its reports using various tests.
What is an auditor?
An individual hired to review financial reports and information systems.
What is an internal auditor?
An internal auditor is an individual employed to assess and evaluate its system of internal controls, including the resulting reports.
What is an external auditor?
An independent individual, who is hired to assess and evaluate the Fairness of financial statements or to perform other contracted financial services.
What is a balance sheet?
A financial statement that lists types and dollar amounts of assests, liabilities, and equity at a specific date.
What is bookkeeping?
The recording of transactions and events, either manually or electronically.
What is the Business Entity Assumption?
Principle that requires a business to be accounted for separately from its owner and from any other entity.
What is common stock?
A corportation’s basic ownership share; also genercally called capital stock.
What is conceptual framework?
A written framework to guide the developement, preparation, and interpretation of financial accounting information.
What is contributed capital?
The total amount of cash and other assets received from stockholders in exchange for stock; also called paid-in capital.
What is a corportation?
A business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders.
What is the cost benefit constraint?
Notion that only infromation with benefits of disclosure greater than the costs of disclosure need be disclosed.
What is the cost principle?
Accounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions.
What are dividends?
The distribution of assets to stockholders.(this reduces retained earnings)
What is equity?
Owner’s claim on the assets of a business; equals the residual interest in an entity’s assets after deducting liabilities: also called net assets.
What are ethics?
Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest.
What are events?
Happenings that both affect an organization’s financial position and can be reliably measured.
What is the Expanded Accounting Equation for non corporations?
Assets = Liabilities + Equity(= Owner capital - Owner withdrawals + Revenues - Expenses) ; For noncorporation
What is the Expanded Accounting Equation for corporations?
Assets = Liabilities + Equity(Contributed Capital + Retained Earnings + Revenues - Expenses) for corporations where dividends are subtracted from retained earnings.
What is the Matching Principle? (Expense recognition principle)
This prescribes that the company records the expenses it incurred to generate the revenue reported.
What is an expense?
the cost of assets and services used to earn revenue. (decrease retained earnings)
What are external transactions?
Exchanges of economic value between one entity and another entity.
What are external users?
Individuals using accounting information who are not directly involved in running the organization.
What is financial accounting?
Area of accounting aimed mainly at serving external users.
What is the Financial Accounting Standards Board? (FASB)
Independent group of full time members responsible for setting accounting rules.
What is the full disclosure principle?
Principle that prescribes financial statements(including notes) to report all relevant information about an entity’s orperations and financial condition.
What are Generally Accepted Accounting Principles? (GAAP)
Rules that specify acceptable accounting practices.
What is the going concern assumption?
Principle that prescribes financial statements to reflect the assumption that the business will continue operation.
What is an income statement?
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.
What is an internal transaction?
Activity within an organization that can affect the accounting equation.
What is an internal user?
Person using accounting information who are directly involved in managing the organization.
What is the International Accounting Standards Board? (IASB)
Group that identifies preferred accounting practices and encourages global acceptance; issues international Finacial Reporting Standards(IFRS).
What are international financial reporting standards?
Standards that are required or allowed by over 100 countries. IFRS is set by the IASB which aims to develop a single set of global standards to promote those standardsmm and to converge national and international standards globally.
What is a Liability?
Creditors claims on an organizations assests; involves a probable future payment of assets, products, or services that a company is obligated to make due to past ransactions or events.
What is managerial accounting?
Area of accounting aimed mainly at serving the decision making needs of internal users; also called management accounting.
What is the matching principle?
Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
What is the materialiy constraint?
Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP.
What is the Measurement Principle?
Accounting information is based on cost with potential subsequent adjustments to fair value;
What is the monetary unit assumption?
principle that assumes transactions and events can be expressed in money units.
What is net income?
Amount earned after subtraction all expenses necessary for and matched with sales for a period; also called income, profit, or earnings.
What is net loss?
Excess of expenses over revenues for a period.
What is a partnership?
Unincorporated association of two or more persons to pursue a business for profit as co owners.
What is a proprietorship?
A business owned by one person in which that person and the company are viewed as one entity for tax and liability purposes.
What is recordkeeping?
Part of accounting that involves recording transactions and events; either manually or electronically. Also called bookkeeping.
What are retained earnings?
Cumulative income less cumulative losses and dividends.
What is a return?
Monies recevied from an investment; often in percent form.
What is a return on assets?
A company’s net income divided by the companies average total assets. (net income is found on the income statement, average total assests are computed by adding the beginning balance to the ending balance in one period then dividing it by two.)
What is the revenue recognition principle?
The principle prescribing that revenue is recognized when earned.
What are revenues?
Expenditures reported on the current income statement as an expense because the do not provide benfits in future periods.
What is risk?
Uncertainty about an expected return.
What is the Sarbanes Oxley Act?
Act that regulates analyst conficts, imposes corporate governance requirements, enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct, and expands penalties for violations. of federal securities laws.
What is the Securites and Exchange Commission?
Federal Agency Congress has charged to set reporting rulesfororganizations that sell ownership shares to the public.
What are shareholders?
Owners of a corporation; also called stockholders.
What is a Statement of cash flow?
A financial statement that lists cash inflows(reciepts) and cash outflows(payments)during a period; Arranged by operating, investing, and financing.
What is a statement of retained earnings?
Report of changes in retained earnings over a period; adjusted for increases(net income), for decreases(dividends and net loss), and for any prior period adjustment.
What is Time period assumption?
Assumption that an organization’s activities can be divided into specific time periods such as months, quarter, or years.
