Chapter 1: Vocab

account

a record of the business activities related to a particular item

accounting

a system of maintaining records of a company’s operations and communicating that info to decision makers

accounting equation

equation that shows a company’s resources (assets) equal creditors’ and owners’ claims to those resources (liabilities and stockholders’ equity)

assets

resources of a company

auditors

trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company’s financials statements with GAAP

balance sheet

a financial statement that presents the financial position of the company on a particular date

common stock

amounts invested by stockholders when they purchase shares of stock; extrenal source of equity

comparability

the ability of users to see similarities and differences between two different business activities

consistency

the use of similar accounting procedures either over time for the smae company; or across companies at the same point in time

corporation

an entity that is legally separate form its owners

cost constraint

financial accounting info is provided only when the benefits of doing so exceed the costs

creditors

lend money to a company; expecting to be paid back the loan amount plus interest

decision usefulness

the ability of the information to be useful in decision making

dividends

distributions to stockholders; typically in form of cash

economic entity assumption

all economic events with a particular economic entity can be identified

ethics

a code or moral system that provides criteria for evaluating right and wrong behavior

expenses

costs of providing products and services and other business activities during the current period

faithful representation

accounting information that is complete, nuetral, and free from error

financial accounting

meaasurement of business activities of a company and communication of those measuements to external parties for decision-making purposes

financial accounting standards board (FASB)

an independent, private body that has primary responsibility for the establishment of GAAP in the United States

financial statements

periodic reports publishes by the company for the purdpose of providing information to external users

generally accepted accounting principals (GAAP)

the rules of financial accounting

going concern assumption

in the absense of information to the contrary, a business entity will continue to operate indefinitely

income statement

a financial statement that reports the company’s revenues and expenses over an interval of time

international accounting standards board (IASB)

an international accounting standard-setting body responsible for the convergence of accounting standards worldwide

international financial reporting standards (IFRS)

the standards being developed annd promoted by the international accounting standards board

liabilities

amounts owed to creditors

monetary unit assumption

a unit or scale of measurement can be used to measure financial statement elements

net income

difference between revenues and expensesp

partnership

business oned by two or more persons

periodicity assumption

the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting

relevance

accounting information that possesses confirmatory value and/or predictive value, and that is material

retianed earnings

all net income minus all dividends over the life of the company; internal source of equity

revenues

amounts recognized when the company sells products or services to customers

sarbanes-oxley act (SOX)

formally titled the public company accounting reform and investor protection act of 2002, this act provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interect for securities analysts, and provides for stiff criminal penalties for violators

sole proprietorship

a business owned by one person

statement of cash flows

a financial statement that measures activities involving cash receipts and cash payments over an interval of time

statement of stockholders’ equity

a financial statement that summarizes the changes in stockholders’ equity over an interval of time

stockholders’ equity

owners’ claims to resources, which arise primarily form contributions by the owners and company operations

timeliness

information being available to users early enough to allow them to use it in the decision process

understanability

users must understand the information within the context of the decision they are making

verifiability