Exam 1: Ch. 1 & 2 Vocabulary Flashcards
business owned by 2 more more persons
partnership
difference between revenues and expenses
net income
users must understand the information within the context of the decision they are making
understandability
accounting information that possesses confirmatory value and/or predictive value, and that is material
relevance
the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting
periodicity assumption
the ability of users to see similarities and differences between two different business activities
comparablity
an entity that is legally separate from its owners
corporation
in the absence of information to the contrary, a business entity will continue to operate indefinitely
going concern assumption
the standards being developed and promoted by the IASB
IFRS (International Financial Reporting Standards)
the use of similar accounting procedures either over time for the same company, or across companies at the same point in time
consistency
a business owned by one person
sole proprietorship
a unit or scale of measurement can be used to measure financial statement elements
monetary unit assumption
financial accounting information is provided only when the benefits of doing so exceed the costs
cost constraint
distributions to stockholders, typically in the form of cash (not considered an expense in running a business)
dividends
all economic events with a particular economic entity can be identified
economic entity assumption
an international accounting standard-setting body responsible for the convergence of accounting standards worldwide
IASB (International Accounting Standards Board)
a financial statement that presents the financial position of the company on a particular date
balance sheet
a system of maintaining records of a company’s operations and communicating that information to decision makers
accounting
trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company’s financial statements with GAAP
auditors
measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes
financial accounting
a record of the business activities related to a particular item
account
a consensus among different measurers
verifiability
the ability of the information to be useful in decision making
decision usefulness
an independent, private body that has primary responsibility for the establishment of GAAP in the U.S.
FASB (Financial Accounting Standards Board)
a code or moral system that provides criteria for evaluating right and wrong behavior
ethics
accounting information that is complete, neutral, and free from error
faithful representation
the rules of financial accounting
GAAP (Generally accepted accounting principles)
those who lend money to a company, expecting to be paid back the loan amount plus interest
creditors
a financial statement that reports the company’s revenues and expenses over an interval of time
income statement
regulates 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
SOX (Sarbanes-Oxley Act)
information being available to users early enough to allow them to use it in the decision process
timeliness
amounts recognized when the company sells products or services to customers
revenues
total resources of a company (ex: cash, equipment, supplies, inventory, buildings, land, investments)
assets
equation that shows a company’s resources (assets) equal creditors’ and owners’ claims to those resources (liabilities and stockholders’ equity)
accounting equation
amounts invested by stockholders when they purchase shares of stock; external source of equity
common stock
costs of providing products, services, and other business activities during the current period
expenses
periodic reports published by the company for the purpose of providing information to external users
financial statements
amounts owed to creditors (ex: loans, suppliers, employees, utility companies, taxes)
liabilities
all net income minus all dividends over the life of the company; internal source of equity
retained earnings
a financial statement that measures activities involving cash receipts and cash payments over an interval of time
statement of cash flows
a financial statement that summarizes the changes in stockholders’ equity over an interval of time
statement of stockholders’ equity
owners’ claims to resources, which arise primarily from contributions by the owners and company operations
stockholders’ equity
full set of procedures used to accomplish the measurement/communication process of financial accounting
accounting cycle
a list of all account names used to record transactions of a company
chart of accounts
right side of an account; indicates a decrease to dividend, expense, or asset accounts and an increase to liability, stockholders’ equity, or revenue accounts
credit
left side of an account; indicates an increase to dividend, expense, or asset accounts and a decrease to liability, stockholders’ equity, or revenue accounts
debit
transactions a firm conducts with a separate economic entity (individuals and/or other companies)
external transactions
a collection of each account with its individual transactions and resulting account balance
general ledger
a chronological record of all transactions affecting a firm
journal
the format used for recording business transactions
journal entry
the process of transferring the debit and credit information from the journal to individual accounts in the general ledger
posting
revenue must be recorded in the period in which goods and services are provided to customers for the amount the company is entitled to receive
revenue recognition principle
a simplified form of a general ledger account with space at the top for the account title, the left side for recording debits, and the right side for recording credits
T-account
a list of all accounts and their balances at a particular date, showing that total debits equal total credits
trial balance
a formal document detailing a company’s activities and financial performance; they also include management discussion and analysis and note disclosures
annual report
management’s views on significant events, trends, and uncertainties pertaining to the company’s operations and resources; this is included on an annual report
management discussion and analysis (MD&A)
additional info to explain the info presented in the financial statements or provide info not included in the financial statements; this is included on an annual report
note disclosures
an item must be sufficient in amount or nature to affect a financial decision in order to be reported with GAAP (is it significant enough in investors’ and creditors’ decision-making process?) – ex: a multibillion-dollar company like Nike may report a $6 wastebasket as a current expense instead of a long-term asset because it has no impact on investors’ decisions
materiality
Most business transactions affect only two accounts. What are transactions that affect more than two accounts called?
Compound transactions
the process of transferring the debit and credit information from the journal to individual accounts in the general ledger
posting
