Term
| The Purpose of Accounting |
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Definition
| To identify, record and communicate economic events of an organization to interested users |
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Definition
| Standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair |
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| Generally Accepted Accounting Principles; Accounting standards developed by accounting professionals |
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SEC= Securities and Exchange commission
FASB= Financial Accounting Standards Board
IASB= International Accounting Standards Board |
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| Record assets at historical cost |
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| An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money. |
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Term
| Economic Entity Assumption |
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Definition
| An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. |
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Definition
Propietorship- 1 owner; unlimited liability
Partnership- 2 or more peeps- unlimited liability
Corporation- limited liability, company is a separate entity from owners |
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Term
| Accounting Statements (4) |
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Definition
Income Statement- Revenue-Expenses=Net Income
Retained Earnings Statement- RE +NI-DIV
Balance Sheet- A=SE+Liabilities
Statement of Cash Flows |
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Term
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Definition
| Record of increases and decreases of a specific asset, liability, equity, revenue or expense item. |
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| A system that records in appropriate accounts the dual effect of each transaction. Debits MUST EQUAL credits |
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| Evidence of a transaction (sales slip, receipts) |
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| An accounting record in which transactions are initially recorded in chronological order. |
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Definition
| The entire group of accounts maintained by a company. |
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| A list of accounts and their balances at a given time |
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Term
| Time-Period Assumption (Periodicity assumption |
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Definition
Accountants divide years into artificial time periods.
Fiscal= 1 year
Interim= monthly, quarterly |
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Definition
| Accounting basis in which companies record transactions that change a company's financial statements in the periods in which the events occur. |
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Definition
| Accounting basis in which companies record revenue when they receive cash and an expense when they pay cash. Not in accordance with GAAP. Fail to match revenues with expenses. |
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| Revenue recognition principle |
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Definition
| The principle that companies recognize revenue in the accounting period in which it is earned. |
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| The principle that companies match efforts (expenses) with accomplishments (revenues) in the same period in which they were incurred. |
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| Entries made at the end of an accounting period to ensure that companies follow the revenue recognition and matching principles. |
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Term
| Adjusting Entries: Deferrals and Accruals |
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Definition
Deferrals: Prepaid expenses, unearned revenues
Accruals: accrued revenues, accrued expenses |
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Definition
| Offset against an asset account in the balance sheet |
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| Trial balance created after adjusting entries have been posted. DR=CR. Financial statements are prepared directly from this. |
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Definition
| When a company makes the accounts ready for the next period. |
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| Formally recognize, in the general ledger, the transfer of net income and dividends to retained earnings. |
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| Post-Closing Trial Balance |
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Definition
| Last step of accounting cycle. Proves the equality of permanent accounts after closing entries have been journalized and posted. |
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Term
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Definition
| A balance sheet that contains a number of standard classifications or sections. |
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Definition
| Methods and measures adopted to safeguard assets and enhance accuracy and reliability of accounting records. Reduces risk of intentional errors and unintentional irregularities. |
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Term
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Definition
| Regulations passed by Congress in 2002 to try to reduce unethical corporate behavior. Created the Public Company Accounting Oversight Board. Companies must develop principles of internal control over financial reporting and continually verify controls are working. Independent auditors. |
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Term
| Principles of Internal Control |
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Definition
1) Establish responsibility- Only one person is responsible for a task
2) Segregation of duties- related duties should be assigned to different individuals
3) Documentation- prenumbered documents
4) Physical, Mechanical, Electronic controls- safes, passwords, security systems
5) Independent Internal Verification- independent people verify accuracy
6) Other- bg checks, require vacations |
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Term
| Uses of a bank (internal control) |
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Definition
-minimizes the amount of currency on hand
- creates a double record of bank transactions
- bank reconciliations |
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Definition
| The process of comparing the bank's balance of an account with the company's balance and explaining any differences to make them agree. |
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Definition
Making up for differences in the bank statement and the books.
1. Deposits in transit
2. Outstanding checks
3. Errors
4. Bank memoranda |
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Definition
1. Perpetual- continuous record of merchandise inventory and Cost of Goods Sold accounts
2. Periodic- Purchases account increased after merch purchased; Ending inventory subtracted from purchases to get CoGS |
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Term
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Definition
FOB shipping point- buyer pays shipping. Ownership transfers to buyer before it's put onto the truck.
FOB destination- seller pays shipping |
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Term
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Definition
| Return defective goods for credit if originally purchased on credit or for cash if purchased with cash. |
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Term
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Definition
| Purchaser may keep defective goods if seller grants allowance (deduction) from purchase price |
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Term
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Definition
Credit terms may permit buyer to claim cash discount for prompt payment.
2/10, n/30 = 2% cash discount if amount is paid in 10 days |
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Term
| Sales Returns and Allowances |
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Definition
-flipside of Purchase Returns and Allowances
-contra-revenue account
Purchase returns and allowances from the seller's perspective. See Purchase return and Purchase allowance, above. |
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Definition
| A reduction given by a seller for prompt payment of a credit sale. |
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Term
| Multi-step income statement |
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Definition
| Distinguishes between operating and non-operating activities |
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Term
| Cost flow assumptions (costing methods) (4) |
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Definition
1. Specific Identification
2. LIFO
3. FIFO
4. Average Costing |
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