Chapter 8 Flashcards
Accounting
A system for recognizing, organizing, analyzing and reporting information about the financial transactions that affect an organization.
Financial accounting
The branch of accounting that prepares financial statements for use by owners, creditors, suppliers and other other external stakeholders.
Generally accepted accounting principles (GAAP)
A set of accounting standards that is used in the preparations of financial statements.
Financial Accounting Standards Board (FASB)
The private board that establishes the generally accepted accounting principles used in the practice of financial accounting.
Balance sheet
A financial statement that reports the financial position of a firm by identifying and reporting the value of the firm’s assets, liabilities and owners’ equity.
Accounting equation
Assets = Liabilities + Owners’ Equity
Assets
Resources owned by a firm
Liabilities
Claims that outsiders have against a firm’s assets
Owners’ equity
The claims a firm’s owners have against their company’s assets (often called “stockholders’ equity” on balance sheets of corporations).
Income statement
The financial statement that reports the revenues, expenses and net income that resulted from a firm’s operations over an accounting period.
Revenue
Increases in a firm’s assets that result from the sale of goods, provisions of services, or other activities intended to earn income
Expenses
Resources that are used up as the result of business operations.
Net income
The difference between the revenue a firm earns and the expenses it incurs in a given time period
Statement of cash flows
The financial statement that identifies a firm’s sources and uses of cash in a given accounting period
Horizontal analysis
Analysis of financial statements that compares account values reported on these statements over two or more years to identify changes and trends.
Budgeting
A management tool that explicitly shows how firm will acquire and use the resources needed to achieve its goals over a specific period of time.
Master budget
A presentation of an organization’s operational and financial budgets that represents the firm’s overall plan of action for a specified time period.
Managerial (or management accounting)
The branch of accounting that provides reports and analysis to managers to help them make informed business decisions.
Cost
The value of what is given up in exchange for something
Fixed costs
Costs that remains the same when the level of productions changes within some relevant range.
Variable costs
Costs that vary directly with the level of production.
