Chapter 2 Flashcards
Investing and Financing Decisions and the Accounting System
Separate entity assumption
each business’s activities must be accounted
for separately from the personal activities of the owners, all other persons, and other entities
Going concern assumption
it is assumed that the
business will continue operating into the foreseeable future, long enough to meet its contractual commitments and plans
Monetary unit assumption
the financial statements are reported using the
national monetary unit (e.g., dollars in the United States)
Historical cost
the balance sheet elements are initially recorded at their cost
Current assets
Cash, Short-Term Investments, Accounts Receivable, Supplies,
Inventories, and Prepaid Expenses
Long-term Assets
Property and equipment (Land, Buildings, and Equipment), Operating lease right-of-use assets (rented assets), Intangibles, and Stocks and bonds of other companies
Current liabilities
Accounts Payable, Unearned Revenue, Accrued Expenses Payable,
Current Lease Liabilities, and others
Noncurrent Liabilities
Notes Payable and Long-term Lease Liabilities
Contributed Capital
Financing Provided by Owners
Earned Capital
Financing Provided by Operations
External Events
exchanges of assets, goods, or services by
one party for assets, services, or promises to pay (liabilities) from another party or parties
Internal Events
exchanges that are not between the business and other parties but nevertheless have a direct and measurable effect on the entity
