CHP1 Key Terms Flashcards
Define Accounting
An informations and measurement system that *identifies, *records, *and communicates an organization's business activities.
Define accounting equation: (what is the formula?)
Assets = Liabilities+ Equity
of expanded….
Assets=Liabilities + Owner, Capitol - Owner, Withdrawals + Revenue - Expenses
Define assets:
Resources a company owns and controls.
Define Audit:
Examinations of whether financial statements are prepared using GAAP
GAAP: generally accepted accounting principles
Define auditors:
Auditors verify the effectiveness of internal controls.
Define Balance sheet:
Describes a company’s financial position (types and amounts of assets, liabilities, and equity) AT A POINT IN TIME.
So date it just for the day processed. ;)
Define Bookkeeping
The recording of transactions and events
Define: Business Entity Assumption
The Business Entity Assumption is when a business is accounted for separately from other business entities and its owner.
This is one of four assumptions.
Define: Common Stock
When a corporation only issues one class of stock (also called capitol stock).
Explain Conceptual Framework
The FASB Conceptual Framework consist of:
- Objectives* (provide info useful to investors, creditors, etc)
- Qualitative Characteristics* (require info that has relevance and faithful representation)
- Elements* (to define items in financial statements)
- Recognition and measurement* (to set criteria for an item to be recognized as an element; how to measure it)
FASB = Financial Accounting Standards Board
Define Corporation
Consists of 1 or more owners, called shareholders. They can get many investors by selling stock or shares of corporate ownership.
Has additional business income tax
Limited Liability
Separate entity with the same rights and responsibilities as a person.
Indefinite business life.
Define cost constraint
Information disclosed by an entity must have benefits to the user that are greater than the costs of providing it.
Materiality (the ability of info to influence decisions) , conservatism, and industry practices are types of constraints.
Define Cost Principle
Also called Measurement Principle.
Accounting information that is based on actual cost.
Measured in cash value.
Ex: Cash for cash. Or truck for actual cash value given or received.
Define cost-benefit constraint
Same as cost constraint,
Information disclosed by an entity must have benefits to the user that are greater than the costs of providing it.
Materiality (the ability of info to influence decisions) , conservatism, and industry practices are types of constraints.
Define Data Analytics
The process of analyzing data to identify meaningful relationships and trends.
Define Data Visualization:
A graphical presentation of data to help ppl understand their significance.
Define Equity
The Owner’s claim on assets
Equal to assets minus liabilities.
Also called Net assets or Residual equity.
Define Ethics
Beliefs that separate from right and wrong.
Define Events
Happenings that effect the accounting equation AND are reliably measured.
What is the expanded accounting equation?
—————————{******Equity********}
Assets=Liabilities + Owner, Capitol - Owner, Withdrawals + Revenue - Expenses
Define: Expense Recognition Principle (1of4)
Also called, matching principle
When a company records the expenses it incurred to generate the revenue reported.
Ex: rent for office space
Define Expenses
Expenses DECREASE equity (via net income) from costs of providing products and services to customers.
Ex: costs of employee time, supplies, advertising, utilities, and insurance fees.
Define External Transactions
Exchanges of values between two entities, which causes change in the accounting equation
Ex: sale of Apple Care plan by Apple
Define External Users
They do not directly run the organization and have limited access to accounting information.
Ex: Lenders, creditors, shareholders(investors),
external auditors, non-managerial and non-executive employees,
regulators (IRS), voters and gov officials,
contributors, suppliers, and customers.
Explain what Financial Accounting focuses on
Focuses on External Users
Define:
Financial Accounting Standards Board
FASB
FASB are given the task of setting GAAP from the SEC.
GAAP: Generally Accepted Accounting Principles
SEC: Securities and Exchange Commission - gov agency
Define Full Disclosure Principle
A company reports the details behind financial statements that would impact user’s decisions. Disclosures are in the statement footnotes.
Define: Generally Accepted Accounting Principles (GAAP)
Concepts and rules that govern financial accounting.
GAAP wants info to have relevance and faithful representation.
Define: Going-concern Assumption
Accounting info presumes that the business will continue operating instead of being sold or closed.
Define: Income statement
Describes a company’s revenues and expenses and computes net income over a period of time.
Define Internal Controls
Procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company polices.
Ex: good records, physical controls (locks, and independent reviewers.
Define: Internal Transactions
Exchanges within an entity, which may or may not effect the accounting equation.
Ex: Target’s use of its own supplies, which are reported as expenses when used.
Define Internal Users
Internal users directly manage the organization.
Ex: CEO & other executives, Managerial positions, purchasing managers, human resource manager, distribution managers, marketing managers, service managers, and research & development managers.
Controller & Treasurer also.
Define International Accounting Standards Board (IASB)
The IASB issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices.
They an be similar yet diff to the USA’s GAAP. They work together to reduce those differences.
Define International Financial Reporting Standards (IFRS)
IFRS are standard that identify accounting practices.
Define Liabilities
Creditors claims on assets.
PAYABLE - Promises future outflow of resources
Define Limited Liability Company (LLC)
1 or more members
no additional income tax
Limited Liability, owners, called members, are not personally liable for LLC debts.
A separate entity with the same rights and responsibilities as a person
Indefinite business life
Define Managerial Accounting
Focuses on the needs of Internal Users
Define Matching Principle (Expense Recognition Principle)
The Matching Principle is when a company records the expenses it incurred to generate the revenue reported.
Ex: Rent for Office Space
Define Measurement Principle
Also called Cost Principle.
Accounting information that is based on actual cost.
Measured in cash value.
Ex: Cash for cash. Or truck for actual cash value given or received.
Define members
Owners in a Limited Liability Company (LLC)
Define Monetary Unit Assumption
Transactions and events are expressed in monetary, or money, units.
EX: US Dollar, or Mexican peso
Define Net Income
When revenues exceed expenses
Define Net Loss
When Expenses exceed Revenues
Define: Owner, Capital
Owner investments are inflows of cash and other net assets from owner contributions, which increase equity.
Define: Owner Withdrawals
Outflows of cash and other assets to owners for personal use, which reduce equity.
Define: Owner Investments
Owner investments are inflows of cash and other net assets from owner contributions, which increase equity.
List the aspects of Partnership
Two or more owners, called Partners
No additional business income tax
Unlimited Liability, Partners are jointly liable for partnership debts
NOT a separate legal entity
Business ends with a partner death or choice
What are the aspects of Proprietorship?
1 owner - super easy set up
NO additional business income tax
Unlimited liability. Owner is personally responsible for proprietorship debts
NOT a separate legal entity
Business ends with owner death or choice
Define Record-keeping
Recording transactions and events
same as bookkeeping
Define: Return on Assets (ROA)
Net Income
——————————- = Return on Assets
Average total assets
ROA helps evaluate if management is effectively using assets to generate net income.
Average total assets = (beginning of current period + end of current period) divided by 2.
Net income is retrieved from the income statement
Define Revenue Recognition Principle
Revenue is recognized(recorded)
(1) when goods/services are provided to customer
and (2) at the amount expected to be received from selling products and services.
Define Revenues
Sales
Revenues INCREASE equity (via net income) from sales of products and services to customers
ex: sales of products, consulting services provided, facilities rented, commissions on services.
Define Securities and Exchange Commission (SEC)
SEC is a gov agency that oversees proper use of GAAP by companies that sell stock and debt to the public.
Define Shareholders
Owners is a corporation
Define shares
A piece of corporate ownership. Stock.
Statement of Cash Flows
Identifies cash inflows and cash outflows over a period of time
\+/- Operating Cash Flows \+/- Investing Cash Flows \+/- Financing Cash Flows \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Change in cash
Statement of Owner’s Equity
Explains changes in owner’s equity from owner investments, net income(or loss), and any withdrawals OVER a PERIOD of time.
Beg Capitol \+ Owner investments \+ Net Income (from income statement) - Withdrawals \_\_\_\_\_\_\_\_\_\_\_\_\_ End capital (Use on next statement, balance statement)
Stock
Shares of corporate ownership
Stockholders
Owners (shareholders) in a corporation.
Time Period Assumption
The life of a company can be divided into time periods, such as months and years, and useful reports can be prepared for those periods.
