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accounting 4
accounting chapter 4 WGU C213
| Term | Definition |
|---|---|
| Accrual accounting | process that accountants use in adjusting raw transaction data into refined measures of a firms economic performance |
| Physical capital maintenance | income is earned only when 1 experiences an increase in actual physical resources |
| Financial capital maintenance | approach that accounts typically use in computing a companys income is the first option described above in which inflation is ignored and a company is said to have income when its financial resources increase |
| Gross profit | the difference between the selling price of the product and the cost of the product |
| Operating income | measures the performance of the fundamental business operations conducted by a company and is computed as gross profit minus operating expenses |
| Equation for Operating Income | Operating Income - Interest expense +/- misc rev, expenses, gains and losses - Income tax expense = income from continuing operations |
| Income from continuing operations | the segments of a company business that it considers to be normal, and expects to operate in for the foreseeable future |
| Net income | accountants attempt to summarize in 1 number the overall economic performance of a company for a given period. (economic profit generated by business operations this year) |
| net income equation | Income from continuing operations +/- income (loss) from discontinued operations +/- extraordinary gains (losses) = Net Income |
| Comprehensive income | number used to reflect an overall measure of the change in a companys wealth during the period. ( net charge in shareholder wealth for the year) |
| Comprehensive income equation | Net Income +/- other comprehensive income (OCI) = Comprehensive Income |
| Other comprehensive Income (OCI) | market - related gains and losses that are not included on the income statement |
| Revenue | the value of the goods and services provided by a company in its business operations |
| Expenses | the value of resources used in generating the reported revenue |
| Cost of goods sold | when a business sells goods to customers, the cost of the goods sold is recorded as an expense |
| intrest expense | cost to "rent" someone else's money |
| Gains and losses | when a company makes or loses money on activities that are peripheral to its primary operations, is a gain or loss instead of a revenue or an expense |
| Restructuring charges | fact that companies have exercised considerable discretion in determining the amount and timing of a restructuring charge |
| Income from continuing operations | Income from continuing operations +/- income (loss) from discontinued operations +/- extraordinary gains (loses) = Net income |
| Discontinued operations | report results in a separate category called income from discontinued operations |
| Extraordinary items | gains and losses that result from transactions that are both unusual in nature and infrequent in occurrence Unusual and infrequent, not expected to happen again |
| Earnings per share (EPS) | the amount of net income associated with each share of stock Net Income/ Outstanding Number of Share of Stock |
| Single-step income statement | with this format, all revenues are grouped together, all expenses are grouped together and net income is computed as the difference between total revenues and total expenses |
| Multiple- step income statement | the multi-step income statement includes multiple sub-totals within the income statement |
| Revenue recognition | a cornerstone of accrual accounting together with matching principle. The both determine the accounting period, in which revenues and expenses are recognized (when do I report) |
| Matching principle | All costs and expenses incurred to generate revenues must be recognized in the same accounting period as the related revenues |
| Matching | the concept typically used in practice to determine when an expense should be recognized |
| When to report revenue recognition | 1. The promised work must be done before revenue is recognized Cash collection should be reasonably assured before revenue is recognized |
| summary 3 methods used to determine when to recognize an expense are | 1. Direct matching, as with cost of goods sold 2. Systematic allocation, as with depreciation Immediate recognition, as with advertising |
| Expanded accounting equation: | Assets = Liabilities + Paid In capital + (Revenues - Expenses - Dividends) |
Created by:
1piper4me
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