Financial Accounting Chapter 1 Knowledge Check Vocabulary

A complete set of vocabulary flashcards based on Financial Accounting Chapter 1 Knowledge Check, covering accounting definitions, principles, standards bodies, business entities, account types, and financial statements.

Accounting

Information system that measures business activities, processes that information into reports, and communicates the results to decision makers

Certified public accountants

Professional accountants who serve the general public

Creditor

Person or business to whom a business owes money (person or business lending money)

Managerial accounting

Field of accounting that focuses on providing information for internal decision makers

Certified management accountants

Professionals who work for a single company

Financial accounting

Field of accounting that focuses on providing information for external decision makers

FASB

Stands for Financial Accounting Standards Board; oversees the creation and governance of accounting standards in the United States

Economic entity assumption

Requires an organization to be a separate economic unit

SEC

U.S. governmental agency that oversees U.S. financial markets

Cost principle

States that acquired assets and services should be recorded at their actual cost, holding that fair value should not be used over actual costs

IASB

Creates International Financial Reporting Standards

GAAP

The main U.S. accounting rule book

Going concern assumption

Assumes that an entity will remain in operation for the foreseeable future

Monetary unit assumption

Assumes that items on the financial statements are recorded in a monetary unit

Faithful representation

Requires/asserts that accounting information should be complete, neutral, and free from material error

Sole proprietorship

Business organization where owner is referred to as a proprietor

Partnership

Business structure that has two or more owners (called partners)

IFRS

Set of global accounting guidelines, formulated by the IASB

Corporation

Type of entity that is designed to limit personal liability exposure of owners to entity's debts

Audit

An examination of a company's financial statements and records

Accounts Payable

A Liability account

Cash

An Asset account

Common Stock

An Equity account

Accounts Receivable

An Asset account

Rent Expense

An Equity account

Service Revenue

An Equity account

Supplies

An Asset account

Dividends

An Equity account

Land

An Asset account

Salaries Expense

An Equity account

Accounting equation

The basic tool of accounting, stated as $\text{Assets} = \text{Liabilities} + \text{Equity}$

Asset

An economic resource that is expected to be of benefit in the future

Balance sheet

Reports on an entity's assets, liabilities, and stockholders' equity as of a specific date

Expense

Decreases in equity that occur in the course of selling goods or services

Income statement

Reports on an entity's revenues, expenses, and net income or loss for the period

Liability

Debts that are owed to creditors

Net income

Excess of total revenues over total expenses

Net loss

Excess of total expenses over total revenues

Revenue

Increases in equity that occur in the course of selling goods or services

Statement of cash flows

Reports on a business' cash receipts and cash payments during a period

Statement of retained earnings

Report how the company's retained earnings balance changed from the beginning to the end of the period