Term
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Definition
| Profit-seeking entities, which are separate and distinct from their owners and other entities, can be identified and measured |
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Definition
| Assumption that the performance and financial position of the entity can be measured in terms of a monetary unit that maintains constant purchasing power |
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Definition
| The life of an economic entity can be divided into fiscal periods and the financial position of the entity can be measured during each of those periods |
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Definition
| The life of an economic entity will extend beyond the current fiscal period |
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Term
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Definition
| Financial accounting information must be verifiable and reliable |
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Term
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Definition
| States that efforts of a given period should be matched against benefits that result from them, and underlies the measure of performance (revenues should be recognized at the time of expenses) |
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Definition
| Helps determine at which of the 4 points (ordered, produced, transferred to buyer, or paid for by the buyer) the revenue of a sale or good should be recognized on the income statement |
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Term
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Definition
| States that only those transactions dealing with dollar amounts large enough to make a difference to financial statement users need to be accounted for in a manner consistent with the principles of financial accounting |
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Definition
| States that when in doubt, finanical statements should understate assets, overstate liabilities, and accelerate the recognition of losses and delay the recognition of gains |
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Term
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Definition
| States that although there is considerable choice among methods, companies should choose a set of methods and use them from one period to the next |
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Term
| 4 basic principles of financial accounting measurement |
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Definition
1. Objectivity
2. Matching
3. Revenue recognition
4. Consistency |
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Term
| 4 different valuation bases used to determine dollar amounts attached to balance sheet accounts |
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Definition
Historical (origina) cost
Replacement cost
Fair market value
Present Value |
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Term
| Lower-of-cost-or-market rule |
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Definition
| Ensures that the dollar amount of inventory is not overstated |
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Term
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Definition
| A form of fair market value reflecting the amount of cash expected to be collected from the outstanding accounts (accounts receivable - projected uncollectible) |
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Term
| 4 Basic assumptions of financial accounting |
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Definition
Economic Entity
Fiscal Period
Going Concern
Stable Dollar |
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Term
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Definition
| Accounts Receivable --> Cash |
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Term
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Definition
| Unearned Revenue --> Cash |
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Term
| Cost of Goods Sold Family |
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Definition
| Inventory --> Accounts payable --> Cash |
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Term
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Definition
| Salaries Payable --> Cash |
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Term
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Definition
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Term
| Depreciation Expense Family |
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Definition
| Accumulated Depreciation --> PPE |
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Term
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Definition
| = risk free rate + required risk premium |
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Term
| The two rights of equity owners |
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Definition
1. Oversee management (BOD)
2. Right to share profits (dividends or reinvesting in company) |
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Term
| 5 Questions to ask about the status of a company |
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Definition
1. Has the company been profitable (look at net income)
2. How large an investment in assets was required to make those profits (size of assets in balance sheet)
3. Where did the assets come from (capital structure)
4. How did the company manage its cash (statement of cash flows)
5. What about the company's owners (statement of shareholder's equity) |
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Term
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Definition
Debt (liabilities)
Contributed Capital (shareholders' equity)
Retained Earnings |
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Term
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Definition
Mechanism in place designed to ensure that management acts in the interest of the firm's owners and reports to them in good faith
- Includes capital markets, professional reputation and ethics, legal liability, auditors, contract, board of directors, and financial reporting regulations and standards |
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