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Introduction to Accounting > Vocab and General Principles > Flashcards

Vocab and General Principles Flashcards

1
Q

Accounting consists of what 3 basic activities?

A

1 identifies
2 records
3 communicates

economic events to provide a history of financial activities

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2
Q

What are 2 vital elements of communication in accounting?

A

Analysis - examine trends and relationships
Interpretation - associate meaning with analysis

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3
Q

Another name for the recording process.

A

Bookkeeping

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4
Q

2 groups of people who use acct. data with examples

A

Internal - mgmt, finance, HR, marketing
External - Investors, Creditors, auditors, regulatory agencies

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5
Q

2 groups of people who use acct. data with examples

A

Internal - mgmt, finance, HR, marketing
External - Investors, Creditors, auditors

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6
Q

type of accounting that generates reports for internal users

A

Managerial accounting

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7
Q

type of accounting that generates reports for external users

A

Financial accounting

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8
Q

What legislation was passed to reduce unethical acct. behavior?

A

SOX - Sarbanes-Oxley Act

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9
Q

Describe GAAP:

A

generally accepted accounting principles - standards by which accountants report economic information

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10
Q

primary accounting standards body in the US

A

FASB - Financial Accounting Standards Board

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11
Q

primary accounting standards body in the internationally

A

IASB - International Accounting Standards Board

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12
Q

international accounting standards

A

IFRS - International Financial Reporting Standards

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13
Q

Agency that regulates US financial markets

A

SEC - Securities and Exchange Commission

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14
Q

Describe 2 GAAP measuring principles

A
  1. historical cost principle - record assets at the cost they were purchased for; must also use this cost in later periods
  2. fair value principle - record assets at the cost of their value today
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15
Q

Describe 2 qualities of accounting information that make it useful for decision-making

A
  1. relevance - can the information make a difference
  2. faithful representation - is the information factual in nature
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16
Q

When is fair value used extensively?

A

When there is active updates in pricing such as trading stocks.

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17
Q

Describe 2 foundational accounting assumptions

A
  1. monetary unit assumption - accepted forms of money will be used to record transactions
  2. economic entity assumption - activities of the owner and entity are kept separate
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18
Q

3 traits of a corporation

A
  1. limited liability - shareholder is not personally liable for obligations of the company
  2. transferability - shares are transferable at anytime
  3. unlimited company life
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19
Q

Describe the 2 basic elements of business

A
  1. what it owns
  2. what it owes
20
Q

Resources that a business owns

A

assets

21
Q

2 claims against assets and which is more important?

A
  1. owner’s equity - owner’s claims
  2. liability - creditor’s claims (must be paid first)
22
Q

Common characteristic of all assets:

A

the capacity to provide benefit to the owner

23
Q

What is the basic accounting equation:

A

Assets = liabilities + owner’s equity

24
Q

Name 4 types of payable liabilities:

A
  1. accounts payable
  2. wages/salaries payable
  3. notes payable
  4. taxes payable
25
Q

Owner’s equity equals

A

Assets - liabilities

26
Q

Why is owner’s equity known as residual equity?

A

Because creditor’s claims (liabilities) are paid before owner’s claims (owner’s equity)

27
Q

What are investments by owner?

A

owner’s capital

28
Q

Gross increase in owner’s equity from business activity

A

Revenue

29
Q

types of revenue (4)

A
  1. selling products
  2. selling services
  3. lending money
  4. renting property
30
Q

Describe 2 decreases in owner’s equity

A
  1. owner’s drawings - withdrawl of assets for personal use
  2. expenses - costs of assets consumed during business activities
31
Q

Name 2 increases in owners equity

A
  1. owners investments
  2. revenue
32
Q

What is the expanded accounting equation?

A

Assets = liabilities + owners capital - owners drawings - expenses

33
Q

economic events recorded by accountants

A

transactions

34
Q

What question is answered by a recording a transaction?

A

Did the company’s financial position change?

35
Q

Owner’s drawings are not an ______, they are _______. Why?

A
  1. not an expense
  2. they are a disinvestment
  3. expenses are incurred to generate revenue, and owner’s drawings don’t generate revenue
36
Q

4 main financial statements

A
  1. income statement
  2. owner’s equity statement
  3. balance sheet
  4. statement of cashflows
37
Q

What 2 financial statements show net income?

A

Net income on the income statement is added to the balance of owner’s capital on the owner’s equity statement.

38
Q

What 2 financial statements owner’s capital?

A

Owner’s capital is shown on the owner’s equity statement and the balance sheet.

39
Q

What 2 financial statements show cash?

A

Cash on the balance sheet is shown on the statement of cash flows.

40
Q

Income statement presents what?

A

a statement of revenues and expenses showing net loss or net income for a particular period of time

41
Q

Does the income statement show investment and withdrawal transactions?

A

No, because owner’s drawing and capital are not expenses

42
Q

What does the owner’s equity statement show?

A

It shows the change in owner’s equity for the same time period as covered by the income statement.

43
Q

What does the balance sheet show and when?

A

Assets, liabilities and owner’s equity are shown on a specific date and time (snapshot)

44
Q

What does a cash flow statement show in general?

A

Shows cash payments and receipts over a specific period of time.

45
Q

What are 5 specific sources of information on a cash flow statement?

A
  1. cash effects on operations
  2. investing activities
  3. financing activities
  4. net increase/decrease of cash
  5. end of period cash
46
Q

owner’s drawing are not expenses, they are ______.

A

a disinvestment

Introduction to Accounting (1 decks)

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