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Financial Accounting ACCT 2001 LSU
Chapters 1-12
44
Accounting
Undergraduate 1
05/04/2009

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Cards

Term
The Purpose of Accounting
Definition
To identify, record and communicate economic events of an organization to interested users
Term
Ethics
Definition
Standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair
Term
GAAP
Definition
Generally Accepted Accounting Principles; Accounting standards developed by accounting professionals
Term
SEC, FASB, IASB
Definition
SEC= Securities and Exchange commission
FASB= Financial Accounting Standards Board
IASB= International Accounting Standards Board
Term
Cost Principle
Definition
Record assets at historical cost
Term
Monetary Unit Assumption
Definition
An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money.
Term
Economic Entity Assumption
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.
Term
3 Business Types:
Definition
Propietorship- 1 owner; unlimited liability
Partnership- 2 or more peeps- unlimited liability
Corporation- limited liability, company is a separate entity from owners
Term
Basic ACCT Equation
Definition
A= L+SE
Term
Accounting Statements (4)
Definition
Income Statement- Revenue-Expenses=Net Income
Retained Earnings Statement- RE +NI-DIV
Balance Sheet- A=SE+Liabilities
Statement of Cash Flows
Term
Account
Definition
Record of increases and decreases of a specific asset, liability, equity, revenue or expense item.
Term
Double-Entry Accounting
Definition
A system that records in appropriate accounts the dual effect of each transaction. Debits MUST EQUAL credits
Term
Business Documents
Definition
Evidence of a transaction (sales slip, receipts)
Term
Journal
Definition
An accounting record in which transactions are initially recorded in chronological order.
Term
Ledger
Definition
The entire group of accounts maintained by a company.
Term
Trial Balance
Definition
A list of accounts and their balances at a given time
Term
Time-Period Assumption (Periodicity assumption
Definition
Accountants divide years into artificial time periods.
Fiscal= 1 year
Interim= monthly, quarterly
Term
Accrual Basis Accounting
Definition
Accounting basis in which companies record transactions that change a company's financial statements in the periods in which the events occur.
Term
Cash-Basis Accounting
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.
Term
Revenue recognition principle
Definition
The principle that companies recognize revenue in the accounting period in which it is earned.
Term
Matching principle
Definition
The principle that companies match efforts (expenses) with accomplishments (revenues) in the same period in which they were incurred.
Term
Adjusting Entries
Definition
Entries made at the end of an accounting period to ensure that companies follow the revenue recognition and matching principles.
Term
Adjusting Entries: Deferrals and Accruals
Definition
Deferrals: Prepaid expenses, unearned revenues

Accruals: accrued revenues, accrued expenses
Term
Contra Asset Account
Definition
Offset against an asset account in the balance sheet
Term
Adjusted Trial Balance
Definition
Trial balance created after adjusting entries have been posted. DR=CR. Financial statements are prepared directly from this.
Term
Closing the books
Definition
When a company makes the accounts ready for the next period.
Term
Closing Entries
Definition
Formally recognize, in the general ledger, the transfer of net income and dividends to retained earnings.
Term
Post-Closing Trial Balance
Definition
Last step of accounting cycle. Proves the equality of permanent accounts after closing entries have been journalized and posted.
Term
Classified Balance Sheet
Definition
A balance sheet that contains a number of standard classifications or sections.
Term
Internal Control
Definition
Methods and measures adopted to safeguard assets and enhance accuracy and reliability of accounting records. Reduces risk of intentional errors and unintentional irregularities.
Term
Sarbanes-Oxley Act
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.
Term
Principles of Internal Control
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
Term
Uses of a bank (internal control)
Definition
-minimizes the amount of currency on hand
- creates a double record of bank transactions
- bank reconciliations
Term
Bank reconciliation
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.
Term
Bank Reconciliation
Definition
Making up for differences in the bank statement and the books.
1. Deposits in transit
2. Outstanding checks
3. Errors
4. Bank memoranda
Term
Inventory Systems (2)
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
Term
Freight Costs
Definition
FOB shipping point- buyer pays shipping. Ownership transfers to buyer before it's put onto the truck.
FOB destination- seller pays shipping
Term
Purchase Returns
Definition
Return defective goods for credit if originally purchased on credit or for cash if purchased with cash.
Term
Purchase Allowances
Definition
Purchaser may keep defective goods if seller grants allowance (deduction) from purchase price
Term
Purchase Discounts
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
Term
Sales Returns and Allowances
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.
Term
Sales Discount
Definition
A reduction given by a seller for prompt payment of a credit sale.
Term
Multi-step income statement
Definition
Distinguishes between operating and non-operating activities
Term
Cost flow assumptions (costing methods) (4)
Definition
1. Specific Identification
2. LIFO
3. FIFO
4. Average Costing
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