Chapter 1 Terminology Flashcards
Difference between financial and managerial accounting?
Financial - external decision-makers
Managerial - internal decision-makers
Creditor
Person or business that another business owes money to (they extend credit)
Chartered Global Management Accountant (CGMA)
advanced CPA
Certified Management Accountant (CMA)
Works for only 1 company
Certified Financial Planner (CFP)
Helps individuals
Financial Accounting Standards Board (FASB)
Private organization that oversees creation of accounting standards in the US
Securities and Exchange Commission (SEC)
US governmental agency that oversees US financial markets and the FASB
Generally Accepted Accounting Principles (GAAP)
main US accounting rule book, formed by FASB
International Financial Reporting Standards (IFRS)
Global guidelines set by IASB
International Accounting Standards Board (IASB)
Private organization that sets global guidelines (IFRS)
Faithful representation
Part of GAAP, requires information is complete, neutral, and error-free
Economic entity assumption
one business is its own economic unit
Limited liability company (LLC)
Each member is only liable for his own actions and pays taxes on his own share of earnings
Cost Principle
Acquired assets and services should be recorded at the actual cost of the transaction, not the fair (market) value
Fair (market) value
current price if the asset is sold
Going concern assumption
assumes entity will remain in operation for the foreseeable future
Monetary unit assumption
items on financial statements must be measured in terms of monetary unit ($)
Audit
examination of a company’s financial statements and records
Sarbanes-Oxley Act (SOX)
requires management to review internal control and take responsibility for accuracy and completeness of financial reports (reduces risk of scandal)
Public Company Accounting Oversight Board (PCAOB)
Created by SOX as a watchdog agency, monitors the work of independent accountants who audit public companies
Accounting Equation
Assets = Liabilities + Stockholder’s Equity
Assets - Liabilities = Stockholder’s Equity
Stockholder’s Equity
Stockholders’ claims to the assets of a business (net worth of the business)
Contributed capital
Owner contributions to a corporation (ex. common stock)
Common stock
basic ownership of a corporation
Retained earnings
equity earned by profits, not given to stockholders
Dividends
Earnings given to stockholders
Revenue
Income before expenses are paid
Expenses
Cost of goods and services (ex. rent, salaries, advertising, utilities)
Net income
Happens if revenue exceeds expenses
Net loss
Happens if expenses exceed revenue
