Chapters 1 & 2 Flashcards
What is the accounting equation?
Assets = liabilities + shareholder’s equity
What is accounting?
A system of maintaining records of a company’s operations and communicating that information to decision makers.
What are assets?
The resources of a company.
What are auditors?
Trained individuals hired by a company as an independent part to express a professional opinion of the conformity of that company’s statements with GAAP.
What is the balance sheet?
A financial statement that presents the financial position of the company on a particular date.w
What is comparability?
The ability of users to see similarities and differences between two different business activities.
What is consistency?
The use of similar accounting procedures either over time for the same company, or across companies at the same point in time.
What is a corporation?
An entity that is legally separate from its owners.
What is cost constraint?
Financial accounting info is provided only when the benefits of doing so exceed the costs.
What is decision usefulness?
The ability of the information to be useful in decision making.
What are dividends?
Cash payments to stockholders.
What is the economic entity assumption?
All economic events with a particular economic identity can be identified.
What are ethics?
A code of moral system that provides criteria for evaluating right and wrong behavior.
What are expenses?
Costs of providing products and services.
What is faithful presentation?
Accounting info that is complete, neutral, and free from error.
What is financial accounting?
Measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes.
What is the Financial Accounting Standards Board?
An independent, private body that has primary responsibility for the establishment of GAAP in the U.S.
What are financial statements?
Periodic reports published by the company for the purpose of providing information for external users.
What are the Generally Accepted Accounting Principles?
The rules of financial accounting.
What is the going concern assumption?
In the absence of info to the contrary, a business entity will continue to operate indefinitely.
What is an income statement?
A financial statement that reports the company’s revenues and expenses over an interval of time.
What is the International Accounting Standards Board?
An international accounting standard-setting body responsible got the convergence of accounting standards worldwide.
What are the International Accounting Reporting Standards?
The standards being developed and promoted by the IASB.
What are liabilities?
Amounts owed to creditors.
What is the monetary unit assumption?
A unit or scale of measurement can be used to measure financial statement elements.
What is net income?
Revenues - expenses
What is a partnership?
Business owned by two or more persons.
What is the periodicity assumption?
The economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting.
What is relevance?
Accounting info that possesses confirmatory value and/or predictive value.
What are retained earnings?
Cumulative amount of net income earned over the life of the company that has been kept (retained) in the business rather than distributed to stockholders as dividends (not retained).
What are revenues?
Amounts earned from selling products or services to customers.
What is the Sarbanes-Oxley Act?
Formally titled the Public Company Accounting Reform and Investor Protection Act of 2002, this act provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators.
What is a sole proprietorship?
A business owned by one person.
What is s statement of cash flows?
A financial statement that measures activities involving cash receipts and cash payments over an interval of time.
What is a statement of stockholders’ equity?
A financial statement that summarizes the changes in stockholders’ equity over an interval of time.
What is stockholders’ equity?
Stockholders’, or owners’, claims to resources, which equal total assets - total liabilities.
What is timeliness?
Info being available to users early enough to allow them to use it in the decision process.
What is understandability?
Uses must understand the info signing the context of the decision they are making,
What is verifiability?
A consensus among different measurers.
What is an account?
A summary of the effects of all transactions related to a particular item over a period of time.
What is the accounting cycle?
Full set of procedures used to accomplish the measurement/communication process of financial accounting.
What is the chart of accounts?
A list of all account names used to record transactions of a company.
What is credit?
Right side of an account. Indicates a decrease to asset, expense, or dividend accounts, and an increase to liability, stockholders’ equity, or revenue accounts.
What is debit?
Left side of an account. Indicates an increase to asset, expense, of dividend accounts, and a decrease to liability, stockholders’ equity, or revenue accounts.
What are external transactions?
Transactions the firm conducts with a separate economic entity.
What is s general ledger?
All accounts used to record the company’s transactions.
What an internal transactions?
Events that affect the financial position of the company but do not include an exchange with a separate economic entity.
What is a journal?
A chronological record of all transactions affecting a firm.
What is posting?
The process of transferring the debit and credit info from the journal to individual accounts in the general ledger.
What is the revenue recognition principle?
Record revenue in the period in which it’s earned.
What is a t-account?
A simplified for, of s general ledger account with space at the top for the account title and two sides for recording debits and credits.
What is a trial balance?
A list of all accounts and their balances at s particular date, showing that total debits equal total credits.
What are retained earnings?
Net income - dividends
