Chapter 1 Terms Flashcards
Account
A record of increases and decreases in a specific asset, liability, or owner’s equity item.
Accounting
The information system that identifies, records, and communicates the economic events of an organization to a wide variety of interested users.
Accounting Equation
Assets = Liabilities + Owner’s equity.
Accounting Stanards for Private Enterprises (ASPE)
A set of standards developed by the Accounting Standards Board (AcSB) that may be used for financial reporting by private enterprises in Canada.
Accounting Transaction
An economic event that is recorded in the accounting records because it changes the assets, liabilities, or owner’s equity items of the organization.
Accounts Payable
A liability created by buying services or products on credit. It is an obligation to pay cash to a supplier in the future.
Accounts Receivable
An asset created when selling services or products to customers who promise to pay cash in the future.
Annual Report
Information that a company gives each year to its shareholders and other interested parties about its operations and financial position. It includes the financial statements and auditors’ report, in addition to information and reports by management.
Assets
Economic resources controlled by a business as a result of past events that have the potential to produce economic benefit
Balance Sheet
A financial statement that reports the assets, liabilities, and owner’s equity at a specific date.
Cash Flow Statement
A financial statement that provides information about the cash receipts and cash payments for a specific period of time.
Comparability
An enhancing qualitative characteristic that accounting information has if it can be compared with the accounting information of other companies because the companies all use the same accounting principles.
Conceptual Framework of Accounting
A coherent system that guides the development and application of accounting principles.
Consistency
The use of the same accounting policies from year to year. Consistency is part of the comparability enhancing qualitative characteristic of accounting information.
Corporation
A business organized as a separate legal entity under corporation law, with ownership divided into transferable shares.
Creditors
All of the persons or entities that a company owes money to.
Drawings
Withdrawals of cash or other assets from an unincorporated business for the owner’s personal use. Drawings result in a decrease in an asset and a decrease in owner’s equity.
Elements of Financial Statement
The components in the financial statements: assets, liabilities, owner’s equity, revenues, and expenses.
Ethics
The standards of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair.
Expenses
The cost of assets consumed or services used in a company’s ordinary business activities. Expenses are decreases in assets or increases in liabilities, excluding withdrawals made by the owners, and result in a decrease to owner’s equity.
Fair Value
Generally the amount the asset could be sold for in the market assuming the company is a going concern, not the amount that a company would receive in an involuntary liquidation or distress sale.
Faithful Representation
A fundamental qualitative characteristic of accounting information meaning information accurately depicts what really happened.
Generally Accepted Accounting Principles (GAAP)
An accepted set of accounting standards that includes broad principles, procedures, concepts, and standards. GAAP guide the reporting of economic events.
Going Concern Assumption
An assumption that a company will continue to operate in the foreseeable future
Historical Cost
An accounting concept that states that assets should be recorded at their historical (original) cost.
Income Statement
A financial statement that presents the revenues and expenses and resulting profit (or loss) for a specific period of time.
International Financial Reporting Standards (IFRS)
A set of global standards developed by the International Accounting Standards Board (IASB) used for financial reporting mostly by publicly accountable enterprises but also by certain private entities.
Investments by the Owner
The increase in owner’s equity that results from assets put into the business by the owner.
Investor
Owners or potential owners of a business.
Liabilities
Present obligations, arising from past events, the settlement of which will include an outflow of economic benefits.
Limited Liability
The legal principle that the owners’ liability for the debts of the business is limited to the amount they invested in the business.
Loss
The amount by which expenses are greater than revenues. A loss decreases owner’s equity.
Matching Concept
The accounting concept that prescribes when a cost incurred by a business should be recognized as an expense. The general concept states that, if a direct association exists between a cost incurred and a revenue recognized, the cost should be recognized as an expense in the same period as the revenue is recognized.
Measurement
The process of determining the amount that should be recognized.
Monetary Unit Concept
A concept that states that only transaction data that can be expressed as an amount of money may be included in the accounting records. It is also assumed that the monetary unit is stable.
Neutral
The characteristic of accounting information when it is not biased toward one position or another. Neutrality is part of the faithful representation fundamental qualitative characteristic of accounting information.
Note Payable
A liability supported by a written promise to pay a specific amount, at a specific time, in the future.
Objective of Financial Reporting
The goal of providing useful information to investors and creditors (external users) to make decisions about providing resources to a business.
Owner’s Equity
The owner’s claim on the assets of the company, which is equal to total assets minus total liabilities.
Partnership
An association of two or more persons to carry on as co-owners of a business for profit.
Performance Obligation
The obligation of a company to perform a service or deliver goods to a customer.
Periodicity Concept
The accounting concept that guides organizations in dividing up their economic activities into distinct time periods. The most common time periods are months, quarters, and years.
Prepaid Expense
The asset created when a business pays cash for costs incurred in advance of being used or consumed.
Profit
The amount by which revenues are greater than expenses. Profit increases owner’s equity.
Proprietorship
A small business owned by one person.
Publicly Accountable Enterprises
Publicly traded companies, as well as securities brokers and dealers, banks, and credit unions, whose role is to hold assets for the public as part of their primary business.
Recognition
The process of recording a transaction in the accounting records
Relevance
A fundamental qualitative characteristic that accounting information has if it makes a difference in a decision.
Reporting Entity Concept
The concept that the accounting for a reporting entity’s activities should be kept separate and distinct from the accounting for the activities of its owner and all other reporting entities.
Revenue Recognition Principle
The principle that guides the recognition of revenue when a performance obligation is satisfied, not when cash is exchanged.
Revenues
The result of business activities that are undertaken to earn profit, such as performing services, selling merchandise inventory, renting property, and lending money. Revenues result in an increase in assets, or decrease in liabilities, and an increase in owner’s equity.
Statement of Owner’s Equity
A financial statement that summarizes the changes in owner’s equity for a specific period of time.
Timeliness
An enhancing qualitative characteristic that accounting information has if information is made available to decision makers before it loses its capacity to influence decisions.
Understandability
An enhancing qualitative characteristic that requires information to be presented in a clear and concise fashion, so that reasonably informed users of that information can interpret it and comprehend its meaning.
Unearned Revenue
The liability created when a customer pays in advance of being provided with a service or product.
Unlimited Liability
The principle that the owners of a business are personally liable (responsible) for all debts of the business.
Verifiability
The characteristic that information has if independent observers, using the same methods, obtain similar results. Verifiability is an enhancing qualitative characteristic.
