Lesson 1 Flashcards
Define “Partnership”
Has multiple owners called partners, each put income on their own returns, unlimited liability.
Define “Corporation”
Has multiple owners called shareholders, separate legal entity, files it’s own income tax return, limited liability.
Define “Sole-Proprietorship”
One owner, each put income on their returns, unlimited liability.
Define “Record keeping / bookkeeping”
Is the recording of financial transitions, either manually or electronically, for the purpose of creating a reliable bank of data.
Define “Accounting”
Is an information system that identifies, measures records, and communicates relevant information that faithfully represents an organizations economic activities.
Define “External users”
External users are not directly involved in running the organization and include shareholders, lenders directors, customers, suppliers and brokers.
Define “Financial Accounting”
Financial accounting is the area of accounting aimed at serving external users.
Define “Internal users”
Internal users of accounting information are those individuals directly involved in managing and operating an organization.
Define “Managerial accounting”
It provides special-purpose reports aimed at serving the decision-making needs of internal users.
Define “Internal controls”
They are procedures set up to protect assets (like cash, equipment, and buildings), ensure that accounting reports are free from error, neutral and complete, promote efficiency, and ensure that company policies are followed.
Four fields in which accountants work:
Financial, Managerial, Taxation, Accounting-related
Define “Audit”
It is an independent review and test of an organization’s accounting system and records; it is performed to add credibility to the financial statements.
Define “External Audit”
To perform the audit function at the request of the board of directors to protect shareholder interests.
What are the four general areas of ethics:
- ) High level of professional competence
- ) Treat sensitive information as confidential
- ) Exercise personal integrity
- ) Be objective in matters of financial disclosure
What is the Rotary 4 way test:
- ) Is it the truth?
- ) Is it faire to all concerned?
- ) Will it build goodwill and better friendships/
- ) Will it be beneficial to all concerned?
Define “Social responsibility”
It is a concern for the impact of our actions on society as a whole.
Define “General Accepted Accounting Principles / GAAP”
The rules that make up acceptable accounting practices. Primary purpose is to make information in financial statements useful.
What makes financial information useful?
Relevance and faithful representation
What are the four traits of GAAP?
- ) Comparable (companies using similar practices)
- ) Verifiable (people can agree that info is truthful)
- ) Timely (available to decision makers)
- ) Understandable (information is clear)
Define “Cost principle”
All transactions are recorded based on the actual cash amount received or paid. In the absence of cash, the cash equivalent amount of the exchange is recorded.
Define “Going-concern principle”
Financial statement users assume that the statements reflect a business that is going to continue its operations instead of being closed or sold.
Define “Monetary unit principle”
Transactions are expressed using unites of money as the common denominator. Assumed that unit is stable and not adjusted for changes in currency value or inflation.
Define “Revenue recognition principle”
Revenue is recorded at the time that it is earned regardless of whether cash or another asses has been exchanged.
Define “Business entity principle”
Each economic entity or business of the owner must keep accounting records and reports that are separate from those of the owner and any other economic entity of the owner.
