Chapter 1 Key Words Flashcards
A system of maintaining records of a company’s operations and communicating that information to decision makers.
accounting
accounting information that is provided for internal users
managerial accounting
Measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes
financial accounting
An entity that is legally separate from its owners and even pays its own income taxes
corporation
a business owned by one person
sole proprietorship
business owned by two or more persons
partnership
resources of a company
assets
amounts owed to creditors
dividends
Owners’ claims to resources, which arise primarily from contributions by the owners and company operations.
stockholders’ equity
Equation that shows a company’s resources (assets) equal creditors’ and owners’ claims to those resources (liabilities and stockholders’ equity) (Assets = Liabilities + Stockholders’ Equity)
accounting equation
Amounts recognized when the company sells products or services to customers.
revenues
Profitability reported in the income statement, consisting of all revenues and expenses and most gains and losses
(Revenues - Expenses)
net income
Costs of providing products and services and other business activities during the current period.
expenses
Distributions to stockholders, typically in the form of cash
dividends
Periodic reports published by the company for the purpose of providing information to external users
financial statements
A financial statement that reports the company’s revenues and expenses over an interval of time
income statement
A financial statement that summarizes the changes in stockholders’ equity over time.
statement of stockholders’ equity
Amounts invested by stockholders when they purchase shares of stock; external source of equity.
common stock
Earnings not distributed as dividends to stockholders over the life of the company.
retained earnings
a financial statement that presents the financial position of the company on a particular date.
balance sheet
A financial statement that measures activities involving cash receipts and cash payments over a period of time
statement of cash flows
the rules of financial accounting
generally accepted accounting principles (GAAP)
An independent, private body that has primary responsibility for the establishment of GAAP in the United States.
financial accounting standards board (FASB)
The standards being developed and promoted by the International Accounting Standards Board.
international financial reporting standards (IFRS)
An international accounting standard-setting body responsible for the convergence of accounting standards worldwide.
internation accounting standards board (IASB
Trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company’s financial statements with GAAP
auditors
A code or moral system that provides criteria for evaluating right and wrong behavior.
ethics
Formally titled the Public Company Accounting Reform and Investor Protection Act of 2002, this act provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators
sarbances-oxley act (SOX)
The ability of the information to be useful in decision making.
decision usefulness
Accounting information that possesses confirmatory value and/or predictive value, and that is material.
relevance
Accounting information that is complete, neutral, and free from error.
faithful representation
The ability of users to see similarities and differences between two different business activities
comparability
The use of similar accounting procedures either over time for the same company, or across companies at the same point in time
consistency
a consensus among different measures
verifiability
Information being available to users early enough to allow them to use it in the decision process.
timelessness
Users must understand the information within the context of the decision they are making.
understandability
Financial accounting information is provided only when the benefits of doing so exceed the costs
cost contraint
All economic events with a particular economic entity can be identified.
economic entity assumption
A unit or scale of measurement can be used to measure financial statement elements
monetary unit assumption
The economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting.
periodicity assumption
In the absence of information to the contrary, a business entity will continue to operate indefinitely
going concern assumption
