Term
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Definition
| The process of identifying, measuring, and communicating economic information to various users. |
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Term
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Definition
| The branch of accounting concerned with providing management with information to facilitate planning and control. |
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Term
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Definition
| The branch of account concerned with the preparation of financial statements for outsider use. |
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Term
| Who uses accounting information? |
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Definition
External and Internal Users.
Internal Users-Company Management and Leadership teams
External Users-Stockholders and Potential Stockholders, Bondholders, Bankers, and other Creditors, as well as Government Agencies. (also suppliers of raw materials) |
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Term
| What is the role of the Securities and Exchange Commission? |
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Definition
| A regulatory agency that sets the rules under which financial statements must be prepared for corporations that sell their stock to the public on organized stock exchanges. |
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Term
| What is the role of the Financial Accounting Standards Board (FASB)? |
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Definition
| The group in the private sector with authority to set accounting standards in the United States. |
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Term
| What is the role of the American Institure of Certified Public Accountants? |
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Definition
| It is a professional organization for certified public accountants, advises the FASB. |
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Term
| What is the International Accounting Standards Committee? |
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Definition
| The organization formed to develop worldwide accounting standards. |
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Term
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Definition
Form of organization with a single owner.
(Economic Entity Concept-the assumption that a single, identifiable unit must be accounted for in all situations.) |
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Term
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Definition
| A business owned by two or more individuals; organization form often used by accounting firms and law firms. |
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Term
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Definition
| A form of entity organized under the laws of a particular state; ownership evidenced by shares of stock. |
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Term
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Definition
The financial statement that summarizes the assets, liabilities, and owners equity of a company.
alt. term- statement of financial position
At all times Assets must equal Liabilities and Owners Equity. |
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Term
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Definition
The financial statement that summarizes the revenues and expenses of a company for a period of time.
(Flow Statement) |
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Term
| Statement of Retained Earnings |
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Definition
The financial statement that summarizes the income earned and dividends paid over the life of a business.
Beginning Balance
Add: Net Income for the period
Deduct: Dividends for the period
Ending Balance-Retained Earnings |
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Term
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Definition
| The financial statement that summarizes an entity's cash reciepts and cash payments during the period from operating, investing, and financing activities. |
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Term
| Who is interested in viewing a company's financial statements? |
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Definition
| Internal and External Users |
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Term
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Definition
| Assets=Liabilities+Owners Equity |
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Term
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Definition
| A future economic benefit. i.e. cash, accounts recievable, prepaid insurance and rent, marketable securities |
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Term
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Definition
| An obligation of a business. i.e. accounts payable, salary and wages payable, income taxes payable, interest payable |
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Term
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Definition
| The owner's claim on the assets of an entity. Assets-Liabilities=Owners |
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Term
| Generally Accepted Accounting Principles (GAAP) |
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Definition
| The various methods, rules, practices, and otehr procedures that have evolved over time in response to teh need to regualte the preparation of financial statements. |
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Term
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Definition
| The assumption that a single, identifiable, unit must be accounted for in all situations. |
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Term
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Definition
| Assets recorded at the cost to acquire them. |
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Term
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Definition
| The assumption that an entity is not in teh process of liquidation and that it will continue infinitly. |
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Term
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Definition
| The yardstick used to measure amounts in financial statements; the dollar in the United States. |
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Term
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Definition
| Artificial segment on the calendar, used as the basis for preparing financial statements. |
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Term
| What are the objectives of financial reporting? |
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Definition
The primary objective of financial reporting is to provide economic information to permit users of the information to make informed decisions.
Secondary objectives include:
Reflect Prospective Cash Receipts to Investors and Creditors
Reflect Prospective Cash Flows to the Company
Reflect the Company's Resources and Claims to the Company |
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Term
| Characteristics of Accounting Information |
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Definition
Understandable
Relevant
Reliable
Comparable
Consistant
Materiality
Conservative |
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Term
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Definition
The quality of accounting information that makes it comprehensible to those willing to spend the necessary tiem.
Financial Information should be comprehensible to those who are willing to spend the time to understand it. |
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Term
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Definition
| The capacity of information to make a difference in a decision. |
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Term
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Definition
| The quality that makes accounting information dependable in representing the events that it purports to represent. |
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Term
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Definition
| The quality that allows a user to analyze two or more companies and look for similarities and differences. |
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Term
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Definition
| The quality that allows a user to compare two or more accounting periods for a single company. |
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Term
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Definition
| The magnitude of an accounting information omission or misstatement that will affect the judgement of someone relying on the information. |
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Term
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Definition
| The practice of using the least optimistic estimate when two estimates or amounts are about equally likely. |
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Term
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Definition
| The average time it takes for a retailer or manufacturer's inventory to turn to cash. |
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Term
| What does a Classified Balance Sheet contain? |
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Definition
Current Assets
Investments
Property, Plant, and Equipment
Intangible Assets
Current Liabilities
Long-Term Liabilities (debt)
Stockholders (Owner's) Equity |
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Term
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Definition
| An asset that is expected to be realized in cash or sold or consumed during the operating cycle or within one year if the cycle is shorter than one year. |
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Term
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Definition
Investments
Property, Plant and Equipment
Intangibles (trademarks, copyrights, franchise rights, patents and goodwills) |
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Term
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Definition
An obligation that will be satisfied within the next operating cycle or within one year if the cycle is shorter than one year.
i.e. A/P, Salaries and Wages Payable, Income Taxes Payable, Interest Payable |
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Term
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Definition
| Notes Payable and Bonds Payable (depends on the date of maturity) |
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Term
| What are the two sources of Stockholders Equity? |
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Definition
| Contributed Capital (capital stock) Earned Capital (retained earnings) |
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Term
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Definition
| The ability of a company to pay its debts as they come due. |
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Term
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Definition
| Current Assets-Current Liabilities |
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Term
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Definition
| Current Assets/Current Liabilities |
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Term
| Single-Step Income Statement? |
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Definition
An income statement in which all expenses are added together and subtracted from all revenues.
(Primary Advantage is Simplicity) |
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Term
| Multiple-Step Income Statement |
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Definition
| An income statement that shows classifications of revenues and expenses as well as important subtotals. |
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Term
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Definition
| Gross profit divided by net sales |
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Term
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Definition
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Term
| What is indicated on the cash flow statement? |
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Definition
| Effects on an entities cash flow by their operating activities, investing activities, and financing activities of the period. |
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Term
| What is included in an entities annual report? |
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Definition
Financial Statements
Report of the Independent Auditors
Management Discussion and Analysis
Notes to the Consolidated Financial Statements |
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Term
| What are the two types of accounting transactions? |
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Definition
| Internal and External Events |
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Term
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Definition
| An event occuring entirely within an entity |
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Term
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Definition
| An event involving interaction between an entity and its environment |
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Term
| What is the role of a source document? |
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Definition
A source document provides the evidence needed in an accounting system to record a transaction.
i.e. invoices (accounts payable and/or expenses), cash register tape (sales revenue), time cards (wages payable) |
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Term
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Definition
| The basic unit for recording transactions |
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Term
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Definition
Numerical list of all of the accounts an entity uses.
Asset Accounts typically number 100-199, Liabilities 200-299, Equity from 300-399, Revenue from 400-499, and Expenses from 500-599 |
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Term
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Definition
| A book of original entry that requires that both the account being debited and the account being credited be listed along with the respective amounts. |
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Term
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Definition
| A book, file, hard drive, or other device containing all the accounts and their respective transactions and balances. |
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Term
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Definition
| Recording an entry in an account in the general ledger. |
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Term
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Definition
| A visual aid used by accountants to illustrate a journal entry's effect on the general ledger accounts. Debit amounts are entered on the left side of the "T" and credit amounts are entered on the right side. |
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Term
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Definition
| The accounting term that means an entry will be made on the left side of an account. |
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Term
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Definition
| To enter an amount on the right side of an account. Normal entries to revenue accounts are credits. Liabilities normally have credit balances. |
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Term
| Debit Normal Balance, debit or credit? |
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Definition
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Term
| Liabilities Normal Balance, Debit or Credit? |
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Definition
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Term
| Owner's Equity Normal Balance, Debit or Credit? |
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Definition
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Term
| Revenues Normal Balance, Debit or Credit? |
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Definition
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Term
| Expenses Normal Balance, Debit or Credit? |
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Definition
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Term
| Dividends Normal Balance, Debit or Credit? |
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Definition
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Term
| What is it meant by "double-entry accounting" system? |
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Definition
| A system of accounting in which every transaction is recorded with equal debits and credits and the accounting equation is kept in balance. |
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Term
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Definition
| A list of each account and its balance, used to prove equality of debits and credits. |
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Term
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Definition
| The process of recording an item in the financial statements as an asset, liability, revenue, expense, or the like. |
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Term
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Definition
| The amount paid for an asset and used as a basis for recognizing it on teh balance sheet and carrying it on later balance sheets. |
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Term
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Definition
| The amount of cash, or its equivalent, that could be recieved by selling an asset currently. |
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Term
| Revenue Recognition Principle |
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Definition
| The accounting guideline requiring that revenues be shown on the income statement in the period in which they are earned, not in the period when the cash is collected. (Accrual) |
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Term
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Definition
| The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval. |
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Term
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Definition
| A system of accounting in which revenues are recognized when cash is recieved and expenses when cash is paid. |
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Term
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Definition
| A system of accounting in which revenues are recognized when earned and expenses when incurred. |
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Term
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Definition
Cash paid before expenses is incurred
Prepaid Rent |
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Term
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Definition
Cash recieved before revenue is earned
Rent Collected in Advance |
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Term
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Definition
Expense incurred before cash is paid
Wages Payable |
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Term
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Definition
Revenue is earned before cash is recieved
Rent Recievable |
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