Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Financial Accounting
Chapter 1: The Financial Statements
| Term | Definition |
|---|---|
| Accounting | an information system that measures business activities, processes data into financial statements and reports, and communicates results to decision makers |
| Decision Makers Who Use Accounting | *individuals *Investors and creditors *Regulatory bodies *Nonprofit organizations |
| Two Types of Accounting | *financial accounting *managerial accounting |
| Financial accounting | provides relevant and accurate financial information to decision makers outside of an organization, such as investors, creditors, government agencies, and the public |
| Managerial accounting | provides accurate and relevant information to people inside the organization, such as managers. Includes budgets, forecasts and projections used to make strategic decisions. |
| How are Businesses Organized | *Proprietorship *Partnership *Limited-liability company (LLC) *Corporation |
| Proprietorship | *single owner *proprietor is personally liable |
| Partnership | *Two or more partners *Partnership doesn't pay taxes, rather the individuals *General partners are personally liable; limited partners are not *Governed by an agreement |
| Limited-Liability Company (LLC) | *One or many owners called members *Members are not personally liable *Income flows through to members and they pay at their own tax rate |
| Corporation | *Stockholders--generally many owners *Stockholders are not personally liable *Must be performed under state law *Legally distinct from its owners *Major disadvantage with double taxation |
| General Partnership | each partner can conduct business on behalf of the organization and can make agreements that legally bind all partners |
| Limited-liability partnership | *one in which a single partner cannot create a large liability for the other partners *each partner is liable for the partnership's debts only up to the extent of their investment in the partnership *must have one general partner that has unlimited liability |
| Stockholders, or shareholders | own stock representing shares of ownership in the corporation. |
| Generally Accepted Accounting Principels (GAAP) | standards are formulated by the Financial Accounting Standards Board (FASB) |
| International Financial Reporting Standards (IFRS) | standards are set by the International Accounting Standards Board (FASB) |
| material | *means it must be important enough that, if it were omitted or incorrect, it would affect a user's decision *only information that must be separately disclosed in financial statements |
| enhancing qualitative characteristics | accounting information must have this which includes: comparability, verifiability, timeliness, and understandability |
| Comparability | means that accounting information must be prepared in a way that allows it to be compared with information from other companies in the same period and it should be consistent with similar information for that company in previous periods |
| Verifiability | means that it must be possible to check the information for accuracy, completeness, and reliability. |
| Timeliness | means that the information must be made available to users early enough to help them make decisions |
| Understandability | means the information must be transparent, or clear, enough so that it makes sense to reasonably informed users of the information (investors, creditors, regulatory agencies, and managers) |
| Cost | the cost of disclosing accounting information should not exceed its expected benefits to the user |
| Entity Assumption | entity, which is an organization (or person) that stands apart as a separate economic unit so as not to confuse its affairs with others |
| Continuity (Going-Concern) Assumption | When measuring and reporting accounting information, we assume that the entity will continue to operate long enough to sell its inventories, convert any receivables to cash, use other existing assets (such as land, buildings, equipment, and supplies) for their intended purposes, and settle its obligations in the normal course of business |
| Quitting concern | going out of business assumption; therefore, assets are measured at their liquidity value |
| Historical cost principle | states that assets should be record at their actual cost, measured on the date of purchase as the amount of cash paid plus noncash types of compensation given in exchange |
| Fair value | the amount that the business could sell the asset for, or the amount that the business could sell the asset for, or the amount that the business could pay to settle the liability |
| Stable-monetary-unit assumption | assuming the dollar's purchasing power is stable over time |
| Assets | economic resources that are expected to produce a benefit in the future. |
| Liabilities | debts owed to people and organizations outside the business (creditors); "outsider claims" |
| Equity | *(also called capital, owners' equity, or stockholders' equity); "insider claims" *assets minus liabilities |
| Accounting equation | shows the relationship among a company's assets, liabilities, and equity where assets must equal the total of liabilities and equity |
| Cash or cash equivalents | liquid assets that can be readily converted to cash |
| Fixed assets | long-lived assets the company uses to do business |
| Account payable | a liability for goods or services purchased on credit |
| Long-term debt | liability that's payable beyond one year from the date of the financial statements |
| Current portion of long-term debt (borrowings) | the amount due within the next year, and it has to be disclosed separately in the current liabilities section |
| Stockholders' equity subparts | *Paid-in capital *Retained earnings |
| Corporation accounting equation | *Assets=liabilities+Stockholders' equity *Assets=liabilities+Paid-in capital+retained earnings |
| Paid-in capital | *the amount the stockholders have invested in the corporation *basic component is common stock |
| Retained earnings | *the amount earned by income-producing activities and kept for use by the business *affected by revenues, expenses, and dividends |
| Revenues | inflows of resources that increase retained earnings as a result of the company delivering goods or services to customers |
| Expenses | resource outflows that decrease a company's retained earnings due to operations representing the cost of doing business |
| Dividends | *decrease retained earnings, because they are distributed to stockholders of assets generated by company's activities *dividends are not expenses, never affect a company's net income *recorded as direct reductions of retained earnings |
| Profits | the excess of revenues over expenses |
| Net income, net earnings or net profit | when a company's total revenue exceed total expenses |
| Net loss | a company's expenses exceed total revenues |
| Bottom line | net income or net loss |
Created by:
superfli72
Popular Accounting sets