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Accounting Test 1
definitions and principles
40
Accounting
Undergraduate 2
03/18/2017

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Term
internal users
Definition
managers who plan organize and run a business
Term
Accounting
Definition
an information system that IDENTIFIES MEASURES RECORDS AND COMMUNICATES the economic events of an organization to interested users
Term
external users
Definition
investors, creditors, IRS, regulatory agencies, customers, labor unions, economic planners
Term
GAAP
Definition
generally accepted accounting principles established by SEC and FASB
Term
SEC
Definition
gov agency that requires companies to file financial reports following GAAp
Term
FASB
Definition
private org. that establishes broad reporting standards and specific accounting rules
Term
Cost Principle
Definition
assets should be recorded at their cost; value exchanged at time something is acquired (as opposed to market value)
Term
Monetary Unit assumption
Definition
only transactions that can be expressed in terms of money are to be included in the acc. records.
added assumption: unit of measure remains sufficiently constant over time
Term
Economic Entity Assumption
Definition
the activities of the entity are to be kept separate and distinct from the activities of its owner and all other entities
Term
proprietershiip
Definition
business owned by one person, small amount of capital

unlimited liability
Term
partnership
Definition
business owned by 2 or more people associated as partners

unlimited liability (responsible for partner's actions too)
Term
Corporation
Definition
a business organized as a separate legal entity (provides protection limited liability) under state corporation law and having ownership divided into transferable shares of stock
Term
assets
Definition
resources owned by business
*cash
*accounts recievable
*supplies
*equipment
Term
liabilities
Definition
claims to those to whom money is owed (creditors) existing debts and obligations
Term
stockholder's equity
Definition
claims of owners (what owners have invested in the company) Includes common stock, Retained Earnings, Dividends, Revenues, and Expenses
Term
FASB objectives of financial reporting
Definition
provide info that is:
useful to those making investment and credit decisions
is helpful in assessing future cash flows
identifies the economic resources (assets), liabilities and the changes in those resources and claims
Term
Qualitative characteristics of Acc info (4)
Definition
relevance, reliability, comparability, consistency
Term
relevance has either...
Definition
predictive value (helps forcast) or feedback value (confirms or corrects prior expectations)
Term
FASB conceptual framework
Definition
1. Objectives of financial reporting
2. Qualitative characteristics of Accounting Info
3. Elements of Financial Statements
4. Operating Guidelines
Term
Time Period assumption
Definition
the economic life of a business can be divided into artificial time periods
Term
Going Concern assumption
Definition
The enterprise will continue in operation long enough to carry out its existing objectives
Term
Revenue Recognition Principle
Definition
revenue should be recognized in the accounting period in which it is earned
Term
Matching Principle (expense Recognition)
Definition
Expenses are matched with revenues in the period in which efforts are made to generate revenues
Recognized when labor or product contributes to revenue
Term
Full disclosure Principle
Definition
circumstances and events that make a difference to financial statement users should be disclosed
Term
working capital
Definition
current assets-current liabilities
Term
profit margin percentage (and eqn)
Definition
percentage of each dollar ot sales that results in net income

net income/net sales
Term
return on Assets
Definition
company's profitability

net income/total assets
Term
Return on Common Stockholder's equity
Definition
measures profitability from common stockholder's viewpoint

net income/ common equity

common equity=initial and subsequent investments
Term
Solvency
Definition
measures enterprise's longevity
Term
Debt to total assets ratio
Definition
total debt/total assets

higher ration = greater risk that the company may be unable to meet its maturity obligatoins

lower ratio= greater buffer available to creditors should the company become insolvent
Term
IASB
Definition
International Accounting Standards Board working toward development of a single set of high-quality global accounting standards for multinational corporations
Term
debits cause increases in which accounts
Definition
Expenses, Assets, Dividends
Term
debits cause decreases in which accounts
Definition
Retained Earnings, Revenues, liabilites, and common stock
Term
elements of a general journal (4)
Definition
transaction date, account titles and explainations, references, 2 amount columns (debit and credit)
Term
Steps in the recording Process
Definition
1. Analyze each transaction for its effects on the accounts
2. Enter the transaction information in a journal (book of original entry)
3. Transfer the journal information to the appropriate accounts in the ledger (book of accounts)
Term
Fiscal year
Definition
accounting time period begins on 1st day of month and ends 12 months later on the last day of the month
Term
Accrual basis accounting
Definition
transaction that change a company's financial statements are recorded in the period in which the events occur
recognizes revenues when earned rather than when the cash is recieved
Term
Cash Basis accounting
Definition
revenue is recorded when cash is received
Term
Types of adjusting entries
Definition
prepayments, accruals (revenues and expenses)
Term
Formula for computing interest
Definition
face value of note * annual interest rate *time in terms of 1 yr (1/12) = Interest
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