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accounting 2
accounting chapter 2 WGU C213
| Term | Definition |
|---|---|
| balance sheet | -reveals what a company owns and owes -represents the financial position of a company at a particular point in time |
| income statement | provides the accountants best attempt at measuring the economic performance of a company |
| statement of cash flow | outlines were a company gets its cash and how it spends that cash |
| Accounting equation | Assets = Liabilities + Equity [resources] [Sources of Financing] |
| Owners equity | the amount left if all liabilities where paid off |
| Stockholders equity | some businesses have stockholders and owners equity is known as stockholders equity. |
| Assets | resources owned or controlled by a company that provide probable future economic benefit |
| Future economic benefit | the primary purpose of balance sheet is to forcast the future |
| Liabilities | obligations that will require the probable future sacrifice of economic benefits in the form of the transfer of assets or the providing or services |
| Owners equity | how much the owners originally invested in the business, plus how much profit they have left in the business Paid in capital = capital stock - capital contributions |
| Paid in capital | the values of the assets given in exchange for shares of stock - Retained earnings: cumulative earnings that have been retained in the business (net income less dividends) Treasury stock: company buys back its own shares of stock |
| Net assets equation | total assets - total liabilities = net assets |
| Retained earnings: | represent the portion of stockholders equity (resulting from cumulative profitable operations) that has not been paid to the owners as dividends |
| Treasury stock | shown as subtraction in the stockholders equity section of the balance sheet |
| Entity concept | the idea that personal financial activity is kept separate from business financial activity |
| Historical cost convention: | an accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition |
| Book value | asset is the assets cost minus the assets accumulated depreciation |
| Going concern assumption | allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments |
| Revenues | the amount of assets created through the performance of business operations |
| Expenses | amount of assets consumed from the performance of business operations and thus are opposite of revenues |
| Gains | money made on activities outside the normal business of a company |
| Losses | refers to money lost on activities outside the normal business of a company |
| Earnings per share (EPS) | tells owners of one share of stock what they want to know |
| Time period concept | business should report financial activities over a period of time |
| GAAP | generally accepted accounting principle) determines the specific conditions in which revenue is recognized or accounted for |
| Operating activities | activities involved in producing and selling goods/services; day -to - day |
| Increasing activities: | purchase and sale of land building and equipment. Also includes buying and selling stocks of other companies |
| Financing activities | cash is obtained from, or repaid to, owners and creditors |
| Notes to financial statements | these provide additional information pertaining to a company's operations and financial position and are considered to be integral part of the financial statement |
| Recognition: | break down of all estimates and judgements into one number and reporting that number in the financial statement |
| Disclosure | notes with the financial statement |
| External Audit | - Makes easier to get loans - Boost the share price of the company Max their own earnings based executive onuses |
| What odes an external auditor do | Independent certification of the reported financial statement |
| Who does external audits? | private companies |
| qualifications for external auditors | need a CPA certificate to sign an audit |
| Counter balance- | litigations- if later found that the external audit was signed off and not accurate they can be a huge fine |
| Relevance | a qualitative characteristic in accounting, info is timely, useful has predictive value and is going to make a difference to a decision-maker |
| Reliability | qualitative characteristics in accounting verifiable information |
| Materiality | question whether an item is large enough to make any difference to anyone |
| examples of operating expenses | cash receipts from selling goods/services purchase inventory pay wages pay taxes pay interests pay utilities pay rent |
| examples of current assets | cash inventory intellectual property? accounts receivable prepaid *less than a year is current assets* |
| examples of long term assets | PPE land buildings equipemtn furnature (depreciations) *assets longer than a year * *fixed assets* |
| examples of current liabilities | accounts payable notes payable taxes payable current portion of a long-term debt |
| examples of long term liabilites | notes payable bonds payable * loans longer than a year* |
| examples of stock hold equity | common stock retained earnings treasury stock |
| consistency principle | once you adopt an accounting principle method, continue to follow it consinstly in the future accounting periods |
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1piper4me
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