Week 1 Nature of Accounting Flashcards
business structure with: one single owner; easy to form/start; limited life (owner is
alive); pass-through taxation (as personal income); not a legal entity; unlimited liability
sole proprietorship
business structure with: two or more owners; easy to form/start; limited life (all owners are living); pass-through taxation (as personal income); not a legal entity; unlimited liability
partnership
business structure with: one or more owners; can be public or private; more difficult to form; unlimited life (stock can transfer); separate legal entity; limited liability; double taxation
corporation
the usual business activity of a company (ex. sell products, provide services, conduct marketing, etc.)
operating activities
business activities having to do with the purchasing and/or sale of resources
investing activities
business activities having to do with debt or equity financing
financing activities
a language of business employed to communicate financial information based upon analyzing, recording, classification, summarization, reporting, and interpretation of financial statements
accounting
the recording of financial information in a
prescribed manner
bookkeeping
the process of measuring economic activity in monetary terms and communicating results to users for the purposes of comparison and making business decisions
the accounting process
the subset of accounting that produces publicly available financial statements for external use by potential investors, shareholders, creditors, financial analysts, labor unions, trade associations, etc.
financial accounting
the subset of accounting that includes preparation of records/reports for tax filing, keeping track of annual legislative changes and taxing techniques/regulations
which may influence business decisions
tax accounting
the subset of accounting which includes generating internal reports and
analyzing data used for decisions
regarding operations by the marketing department, management team, finance department, etc.
managerial accounting
a network of conventions, rules, guidelines, and procedures for recording transactions and preparing financial statements. which forms the basis for comparison among financial statements of different corporations
Generally Accepted Accounting Principles (GAAP)
FASB
Financial Accounting Standards Board
SEC
U.S. Securities and Exchange Commission
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards
property of monetary value owned by a business (probable future economic benefit)
assets
any debts that a business owes (probable future sacrifices of economic benefits)
liabilities
the residual claims of the owners (stockholders) on the assets of the company (what’s left of assets after all liabilities are satisfied)
owner’s (stockholders) equity
an inflow of cash/net-assets as a result of
selling a product or providing a service
revenues (income)
a decrease in cash/net-assets (other than
withdrawals by the owners) as a result of efforts to produce revenues
expenses
an inflow of cash/net-assets as a result of a peripheral transaction related to secondary operations of the business
gains
outflows of cash/net-assets as a result of a peripheral transaction related to secondary operations of a business
losses
an economic unit with defined boundaries for which we accumulate and report financial information
economic entity/accounting entity
the economic life used for the preparation of financial statements most commonly in a one year interval
accounting period
A twelve month period beginning January 1st and concluding on December 31st
calendar year
A twelve month period that does not begin on January 1st
fiscal year
the principle that accounting information must be measured in a common denominator for it to be useful
monetary unit concept
all expenses incurred to generate revenues should be recognized during the same period as those revenues
matching principle
potential measurement errors are better when profit is underestimated rather than overestimated
conservatism
