Chapter One Flashcards
Accounting
Is the “language of business”. And used to communicate financial info to users through reports.
GAAP
US Generally accepted accounting principles
Acct Standards: rules
Acct Principles: framework
FASB
Financial Accounting Standards Board.
Develops accounting standards in the US and maintains an electronic database called the Accounting Standards Codification
SEC
Securities and Exchange Commission.
Has authority over accounting and financial disclosures for companies whose stock shares are traded publicly.
IASB
International Accounting Standards Board.
Most countries use these accounting standards.
More “principles-based”
They set IFRS international Financial Reporting Standards
AICPA
American institute of certified public accountants
Data Analytics
Analyzing raw data to find patterns, anomalies, and insight.
Relevant
Info w potential to impact decisions
2 characteristics
Financial Reports
RELEVANT/ impact on decisions
FAITHFUL Representation / accurately reflecting entity’s condition
.
4 Characteristics
of
Relevant & Faithful Representation
Comparability -accurate
Verifiability - 3ed party
Timeliness - distributed info
Understandably - clear
Accurately reflects entity’s economic activity or condition.
Measurement Principle
OBJECTIVE & VERIFIABLE
based upon unbiased evidence & 3ed party confirmation
Historical Cost
or
Cost Principle
Recorded an item at its initial transaction price.
Revenue Recognition Principle
Revenue recorded when earned.
When services or goods are delivers to customer.
Expense Recognition
Or
Matching Principle
Recorded in same period as it is incurred.
Expenses
Cash used to generate revenue.
Arm’s Length Transaction
Transaction between two INDEPENDENT parties.
4 Principals of Financial Accounting
Measurement Principle
Historical Cost
Revenue Recognition
Expense Recognition
Assets
resources owned by a business
Liabilities
Debts owed and “payable” to outside creditors.
Accounts Payable
Notes Payable
Wages Payable
Unearned Revenue - cash/ payment before services are provided.
Equity
Owners Rights
Accounting Equation
ALOE
(A) = (L) + (OE)
+CS+RE-Divd+R-E
ASSETS=LIABILITIES + OWNERS EQUITY…includes
+ common stock
+ Retained Earnings
- Divideds
+ Recenue
- Expenses
Common Stock
Shares issued to investors as proof of ownership.
Net Income
Net Profit
Earnings
Revenues > expenses
Net Loss
Expenses > Revenue
Balance Sheet
Assets
Liabilities
Stockholders equity
Statement of stock holders equity
Common Stock and Retained Earnings
reflects changes
Business
Uses resources materials and labor are assembled and processed to sell goods or labor to customers for a profit.
Financial Accounting
Provides info to external users like, investors, creditors, customers, govt.
Managerial Accounting
Provides internal users with info to run the biz.
managers, CEO, CFO, HR, and employees
Ethics
Moral principles that guide conduct
SOX
- Sarbanes-Oxley Act
- Congress passed laws to monitor biz and accounting.
- new oversight body called (Public Company Accounting Oversight Board) (PCAOB)
Accounts Recivable
Amounts customers owe us
Dividends
Earnings distributed to owners.
Decreases stockholders equity.
Do NOT effect net income or loss
Retained Earnings
Revenue - Expenses = net income
Biz Transactions
Changes an entity’s financial condition
4 Financial Statments
INCOME STATEMENT
STOCKHOLDERS EQUITY
BALANCE SHEET
STATEMENT CASH FLOW
Income Statement
REVENUES and EXPENSES
for a time range.
Does not include investments or dividends
Statement of stockholders equity
Changes in retained earnings
Beginning retained earnings + net income - dividends = ending retained balance.
Statement of Cash Flows
Cash receipts
and
Cash payments
Ratio of liabilities to Stockholders equity
Total liabilities / total stockholders equity
Paying an amount on account reduces
Liabilities
4 Assumptions of GAAP
MONETARY UNIT / a single
TIME PERIOD / US yearly with quarterly
Biz Entity / separate from owners
Going Concern / future operations, reporting assets at their initial or historical value.
Fiscal Year
Accounting period used by a company
Accounting Standards Codification
Electronic data-base run by the FASB
Business Entity Principle
Maintain separate records from their owners and other businesses