Set 1 Flashcards
Accounting
Information system that reports on the economic activities and financial condition of a business.
Accounting provides information
Stakeholders such as resource providers, financial analysts, brokers, attorneys, etc.
Financial
External users, measures value, summarizes past, GAAP, FASB, and summarized data for organization.
Managerial
Internal users, adds value, emphasis on future decisions, no GAAP, and detalied.
FASB
Financial accounting standards board that has primary authority for establishing accounting standards in the US.
GAAP
Generally accepted accounting principles that were established by FASB.
Market
Group of people or entities organized to exchange items of value. Three groups: consumers, businesses, and resource owners.
Investors
Provide financial resources in exchange for ownership interest in businesses. Owners expect businesses to return to them a share of the earned income.
Creditors
Lend financial resources to a business. Expect the businesses to repay borrowed resources plus a specified fee called interest.
Three elements of equation
Assets, liabilities, and stockholders’ equity. SE subdivided into common stock and retained earnings.
Assets
Resources a business uses to earn money. Sources are creditors, investors, or operations. Any account title ending in the word “receivable.” Any account title beginning with the word “prepaid.”
Example(s): land, office supplies, accounts receivable, building, merchandise inventory, notes receivable.
Liabilities
Obligations a business has to its creditors. Any account title ending in the word “payable.”
Example(s): bonds payable, accounts payable, sales tax payable.
Common stock
Specific commitments made to investors.
Stockholders
Investors are referred to as this.
Stockholders’ equity
The business’ commitment to the stockholders.
Earnings/income
Net increases in assets generated from operations.
Losses
Net decreases in assets caused by operations.
Dividend
Distribution of assets generated through earnings.
Retained earnings
If a business retains assets, it commits to those assets for the benefits of stockholders. The increase in these commitments is RE. Revenue, expenses, and dividends.
Revenue
Economic benefit a company derives from providing goods and services to its customers.
Example(s): sales revenue, rent revenue.
Expense
Economic sacrifice a business incurs in the process of generating revenue.
Example(s): advertising expense, rent expense, salaries expense.
Stockholders’ equity (equation)
Common stock + retained earnings
Assets (equation)
Cash + land
Liabilities (equation)
Notes payable
