Chapter 1 KEY WORDS Flashcards
Accounting
Service-pased profession that provides reliable and relevant financial information useful in making decisions
Accounting Equation
Expression of the relationship between the assets and the claims on those assets
Accounting event
Economic ocurrence that changes a company’s assets, liabitlies, or equity
Accounting period
Span of time covered by the financial statements, normailly one year, but may be a quarter, a month
Accounts
Record of classified and summarized transaction data, component of financial statement elements.
Annual report
Document in which an orgnanization provides information to stockholders, usually on an annual basis
Articulation
Financial statement are interrelated
- Net income (reported statement = beginning retained earnigs (statement of changes in stockholders’ equity
Asset Source Transcation
Transaction that increases an asset and a claim on assets
Types:
1. Acquisitions from owners (equity)
2. Borrowing from creditiors (liabilities
3. Earnings from Operations (revenues)
Asset exchange transaction
Transcation that decreases one asset while increasing another asset. TOTAL ASSET DOES NOT CHANGE
Asset Use Transcation
Transaction the decreases both an asset and a claim. Types
1. Distributions (transfer to owners, dividends)
2. Liability payments (creditors)
3. Expenses (costs incurred to operate the business)
Asset
Economic resource used to produce revenue that it is expected to procide future benefit to business
Balance sheet
Financial statement that reports a company’s assets and the corresponding claims on those assets as of a specific date
Claims
Owners and creditos interests in a business’ assets
Closing
Transferrinf balance from temporary accounts (revenue, expenses and dividends) to the permanent account (retained earnings)
Common Stock
Corporate stock that carries no preferences as to claims on assets or dividens, evidence ownership in a company
Credutirs
Loaned goods or services to business (loans means prestar)
Dividend
Transfer of wealth from a business to its owners
Double-entry accounting
Provides checks and balances by recording two sides for every transaction
Earnings (net income)
Revenue - expenses, profit
Elements
Assets, liabilities, equity, contributed capitalm revenue, gain, losses, distributions, and net income
Expenses
Economic sacrifices (decreases in assets or increases in liabilities) that incurred in the process of generating revenue
Financial Accounting
Focused on the business information needs for EXTERNAL USERS (gov, investors, creditors etc) to classify and record business events and transactions to produce external financial reports)
Financial Accounting Standards BoARD
Private, independent standard-setting body established by the accounting profession that has been delegated the authority by the SEC to establish most of the accounting rules and regulation for public finacial reporting
Financial resources
Money or credit supplied to a business by investors and creditors
Financial statements
Primary means of communicating the financial information of an organization to the external users. Income Statement, statement of changes in equity, balance sheet, and state of cash flows
Financing activities
Cash inflows and outflows from transtions with investor and creditos, cash reipts from issuing stocks, borrowing activities, pay dividents
Operating activities
Cash inflows from and outflow for routing, everyday business operation, revenue and expense transactions
Investing activities
Cash inflows and outflows associated with buying or selling long-term assets. Lending activities and investments in the debt and equity of other companies
General Ledger
Set of all account used in a given accounting system, organized in financial statement order
Generally accepted acounting principles
Rules and practices that accountants agree to follow in financial reports prepared for public distributions
Going Concern assumtpion
Accounting presumption that a company will continue to operate indefinitely, benefiting from its assets and paying its obligation in full, justifies reporting assets and liabilities in the financial satements
Historical cost concept
Accounting practice of reporting assets at the actual price paid for them when purchased regardless of estimated changes in market value
Income
Added value created in transforming resources into more desirable states
Income Statement
Reports profitability, measures the difference between revenues and expenses for the accounting period
Interest
Fee paif for the use of funds, expense to the borrowe and revenue to lender
International Financial Reporting Standards (IFRS)
Pronouncements established by the International Accounting Standards Board that provide guidance for the preparation of financial statements.
Investors
Company or individual who gives assets or services in exchange for security certificates representing ownership interests
International Accounting Standards Board
Private, independent body that establishes International Financial Reporting Standards (IFRS). The IASB’s authority is established by various governmental institutions that require or permit companies in their jurisdiction to use IFRS.
labor resources
The intellectual and physical efforts of individuals used in the process of providing goods and services to customers.
Liabilities
Obligations of a business to relinquish assets, provide services, or accept other obligations
Liquidaition
Process of dividing up an organization’s assets and returning them to the resource providers. In business liquidations, creditors normally have first priority; after creditor claims have been satisfied, any remaining assets are distributed to the company’s owners (investors).
Liquidity
Ability to convert assets to cash quickly and meet short-term obligations
Managerial accounting
Focused on the information needs of managers and other working within the business. objective is to gather and report information that adds value to the business.
Market
Group of people or entities organized to buy and sell resources
Matching concept
Recognizing expenses in the same accountign preiod as the revenues they produce. Methods
1. Expenses with revenue
2. Expenses with perioud they are incurred
3. Expenses systematically with revenues
Net income
Increase in equity resulting from operating the business
Net loss
Decrease in equity resulting from operating in business
Not-for-profit entities
Organization primarily for motives other than making a profit, such as providing goods and services for the social good.
Permanent accounts
Balance sheet accounts; contain information carried forward from one accounting period to the next
Retained earnings
Portion of stockholders’ equity that includes all earnings retained in the business since inception (revenues minus expenses and distributions for all accounting periods)
Profit
Value added by transforming resources into products or services desired by customers.
Reporting entities
Businesses or other organizations for which financial statements are prepared.
Revenue
The economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers.
Service businesses
Organizations such as accounting and legal firms, dry cleaners, and insurance companies that provide services to consumers
Merchandising businesses
Companies that buy and resell merchandise inventory.
Stakeholders
Parties interested in the operations of a business, including owners, lenders, employees, suppliers, customers, and government agencies.
Statement of cash flow
The financial statement that reports a company’s cash inflows and outflows for an accounting period, classifying them as operating, investing, or financing activities
Statement of changes in stockholders’ equity
Statement that summarizes the transactions that affected the owners’ equity during the accounting period.
Stewardship
Refers to a business’s duty to protect and use the assets of the company for the benefit of the owners (the firm’s stockholders).
Stockholders
Owners of corporation
Stockholder’s equity
portion of the assets that is owned by the stockholders.
Temporary accounts
Accounts used to collect retained earnings data applicable to only the current accounting period (revenues, expenses, and distributions); sometimes called nominal accounts.
