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Accounting

Ch.1

TermDefinition
Accounting an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.
Accounting Equation reflects relation of assets, liabilities, and equity. ASSETS= LIABILITIES + EQUITY
Assets resources a company owns or controls
Audit Analysis and report of an organization's accounting system, its records, and its reports using various tests. It does not attest to absolute accuracy of the statements.
Auditors people who must verify the effectiveness of internal controls. Individuals hired to review financial reports and information systems.
Balance Sheet describes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time.
bookkeeping the recording of transactions and events, either manually or electronically.
Business entity assumption means that a business is accounted for separately from other business entities, including its owner.
common stock When a corporation issues only one class of stock
corporation Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders.
external users not directly involved in running the organization. They include shareholders (investors), lenders, directors, customers, suppliers, regulators, lawyers, brokers, and the press. External users have limited access to an organization's information.
financial accounting the area of accounting aimed at serving external users by providing them with general-purpose financial statements.
internal users those directly involved in managing and operating an organization. They use the information to help improve the efficiency and effectiveness of an organization.
managerial accounting the area of accounting that serves the decision-making needs of internal users.
Ethics beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior.
generally accepted accounting principles (GAAP) rules that specify acceptable accounting principles
Securities and Exchange Commission (SEC) government agency, has the legal authority to set GAAP. The SEC also oversees proper use of GAAP by companies that rais
Financial Accounting Standards Board (FASB) a private-sector group that sets both broad and specific principles.
International Accounting Standards Board (IASB), an independent group (consisting of individuals from many countries),issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices.
International Financial Reporting Standards (IFRS) issued by International accounting standards board that identify preferred accounting practices
Measurement Principle (Cost Principle) usually prescribes that accounting information is based on actual cost (with a potential for subsequent adjustments to market)
revenue recognition principle The principle prescribing that revenue is recognized when earned.
Matching ( or expense recognition) principle Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
Full disclosure principle Principle that prescribes financial statements (including notes) to report all relevant information about an entity's operations and financial condition.
Going-concern assumption Principle that prescribes financial statements to reflect the assumption that the business will continue operating.
Monetary unit assumption Principle that assumes transactions and events can be expressed in money units.
Time period assumption Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years.
Sole proprietorship Business owned by one person that is not organized as a corporation; also called proprietorship.
Partnership Unincorporated association of two or more persons to pursue a business for profit as co-owners.
Shareholders Owners of a corporation; also called stockholders.
Shares Equity of a corporation divided into ownership units; also called stock.
Common stock Corporation's basic ownership share; also generically called capital stock.
Materiality constraint Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP.
Cost-benefit constraint The notion that the benefit of a disclosure exceeds the cost of that disclosure.
Sarbanes–Oxley Act passed by congress to help curb financial abuses at companies that issue their stock to the public. SOX requires that these public companies apply both accounting oversight and stringent internal controls.
Dodd-Frank Wall Street Reform and Consumer Protection Act passed by congress to (1) promote accountability and transparency in the financial system, (2) put an end to the notion of “too big to fail,” (3) protect the taxpayer by ending bailouts, and (4) protect consumers from abusive financial services.
Liabilities Creditors' claims on an organization's assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events.
Equity wner's claim on the assets of a business; equals the residual interest in an entity's assets after deducting liabilities; also called net assets
owner investment Assets put into the business by the owner.
owner's capital Account showing the owner's claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company's inception; also referred to as equity.
revenues Gross increase in equity from a company's business activities that earn income; also called sales.
owner withdrawal Account used to record asset distributions to the owner.
expenses Outflows or using up of assets as part of operations of a business to generate sales.
Expanded accounting equation Assets = Liabilities + Equity; Equity equals [Owner capital − Owner withdrawals + Revenues − Expenses]
net income Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings.
net loss Excess of expenses over revenues for a period.
External transactions Exchanges of economic value between one entity and another entity.
internal transactions Activities within an organization that can affect the accounting equation.
events Happenings that both affect an organization's financial position and can be reliably measured.
income statement describes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities
Statement of owner's equity explains changes in equity from net income (or loss) and from any owner investments and withdrawals over a period of time.
Balance sheet describes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time.
Statement of cash flow identifies cash inflows (receipts) and cash outflows (payments) over a period of time.
return Monies received from an investment; often in percent form.
risk Uncertainty about an expected return
withdrawal Payment of cash or other assets from a proprietorship or partnership to its owner or owners.
Created by: 1205581920