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Acct101 > CHP1 Key Terms > Flashcards

CHP1 Key Terms Flashcards

1
Q

Define Accounting

A 
An informations and measurement system that 
*identifies, 
*records, 
*and communicates 
an organization's business activities.
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2
Q

Define accounting equation: (what is the formula?)

A

Assets = Liabilities+ Equity

of expanded….

Assets=Liabilities + Owner, Capitol - Owner, Withdrawals + Revenue - Expenses

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3
Q

Define assets:

A

Resources a company owns and controls.

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4
Q

Define Audit:

A

Examinations of whether financial statements are prepared using GAAP

GAAP: generally accepted accounting principles

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5
Q

Define auditors:

A

Auditors verify the effectiveness of internal controls.

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6
Q

Define Balance sheet:

A

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. ;)

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7
Q

Define Bookkeeping

A

The recording of transactions and events

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8
Q

Define: Business Entity Assumption

A

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.

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9
Q

Define: Common Stock

A

When a corporation only issues one class of stock (also called capitol stock).

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10
Q

Explain Conceptual Framework

A

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

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11
Q

Define Corporation

A

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.

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12
Q

Define cost constraint

A

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.

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13
Q

Define Cost Principle

A

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.

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14
Q

Define cost-benefit constraint

A

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.

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15
Q

Define Data Analytics

A

The process of analyzing data to identify meaningful relationships and trends.

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16
Q

Define Data Visualization:

A

A graphical presentation of data to help ppl understand their significance.

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17
Q

Define Equity

A

The Owner’s claim on assets

Equal to assets minus liabilities.

Also called Net assets or Residual equity.

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18
Q

Define Ethics

A

Beliefs that separate from right and wrong.

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19
Q

Define Events

A

Happenings that effect the accounting equation AND are reliably measured.

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20
Q

What is the expanded accounting equation?

A

—————————{******Equity********}
Assets=Liabilities + Owner, Capitol - Owner, Withdrawals + Revenue - Expenses

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21
Q

Define: Expense Recognition Principle (1of4)

A

Also called, matching principle

When a company records the expenses it incurred to generate the revenue reported.

Ex: rent for office space

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22
Q

Define Expenses

A

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.

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23
Q

Define External Transactions

A

Exchanges of values between two entities, which causes change in the accounting equation

Ex: sale of Apple Care plan by Apple

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24
Q

Define External Users

A

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.

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25
Q

Explain what Financial Accounting focuses on

A

Focuses on External Users

26
Q

Define:

Financial Accounting Standards Board

FASB

A

FASB are given the task of setting GAAP from the SEC.

GAAP: Generally Accepted Accounting Principles
SEC: Securities and Exchange Commission - gov agency

27
Q

Define Full Disclosure Principle

A

A company reports the details behind financial statements that would impact user’s decisions. Disclosures are in the statement footnotes.

28
Q

Define: Generally Accepted Accounting Principles (GAAP)

A

Concepts and rules that govern financial accounting.

GAAP wants info to have relevance and faithful representation.

29
Q

Define: Going-concern Assumption

A

Accounting info presumes that the business will continue operating instead of being sold or closed.

30
Q

Define: Income statement

A

Describes a company’s revenues and expenses and computes net income over a period of time.

31
Q

Define Internal Controls

A

Procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company polices.

Ex: good records, physical controls (locks, and independent reviewers.

32
Q

Define: Internal Transactions

A

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.

33
Q

Define Internal Users

A

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.

34
Q

Define International Accounting Standards Board (IASB)

A

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.

35
Q

Define International Financial Reporting Standards (IFRS)

A

IFRS are standard that identify accounting practices.

36
Q

Define Liabilities

A

Creditors claims on assets.

PAYABLE - Promises future outflow of resources

37
Q

Define Limited Liability Company (LLC)

A

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

38
Q

Define Managerial Accounting

A

Focuses on the needs of Internal Users

39
Q

Define Matching Principle (Expense Recognition Principle)

A

The Matching Principle is when a company records the expenses it incurred to generate the revenue reported.

Ex: Rent for Office Space

40
Q

Define Measurement Principle

A

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.

41
Q

Define members

A

Owners in a Limited Liability Company (LLC)

42
Q

Define Monetary Unit Assumption

A

Transactions and events are expressed in monetary, or money, units.

EX: US Dollar, or Mexican peso

43
Q

Define Net Income

A

When revenues exceed expenses

44
Q

Define Net Loss

A

When Expenses exceed Revenues

45
Q

Define: Owner, Capital

A

Owner investments are inflows of cash and other net assets from owner contributions, which increase equity.

46
Q

Define: Owner Withdrawals

A

Outflows of cash and other assets to owners for personal use, which reduce equity.

47
Q

Define: Owner Investments

A

Owner investments are inflows of cash and other net assets from owner contributions, which increase equity.

48
Q

List the aspects of Partnership

A

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

49
Q

What are the aspects of Proprietorship?

A

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

50
Q

Define Record-keeping

A

Recording transactions and events

same as bookkeeping

51
Q

Define: Return on Assets (ROA)

A

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

52
Q

Define Revenue Recognition Principle

A

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.

53
Q

Define Revenues

A

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.

54
Q

Define Securities and Exchange Commission (SEC)

A

SEC is a gov agency that oversees proper use of GAAP by companies that sell stock and debt to the public.

55
Q

Define Shareholders

A

Owners is a corporation

56
Q

Define shares

A

A piece of corporate ownership. Stock.

57
Q

Statement of Cash Flows

A

Identifies cash inflows and cash outflows over a period of time

\+/- Operating Cash Flows
\+/- Investing Cash Flows
\+/- Financing Cash Flows
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Change in cash
58
Q

Statement of Owner’s Equity

A

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)
59
Q

Stock

A

Shares of corporate ownership

60
Q

Stockholders

A

Owners (shareholders) in a corporation.

61
Q

Time Period Assumption

A

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.

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