ACC 210 Exam 1 vocab

GAAP (generally accepted accounting principles)

set of rules to determine how a company’s financial info should be captured and reported

financial accounting

focuses on providing info to users outside of org (ex. investors, creditors, tax authorities)

managerial accounting

focuses on providing information to users inside the org

governmental/nonprofit accounting

adhere to specific accounting rules specialized to their types of organizations

public accounting

employed by accounting firm to provide services to the public

private accounting

provides accounting services by being an employee of a business

sole proprietorship

business owned by one person

sole proprietor benefits

ease of formation, control, all profits flow to one person, lower income tax consequences

sole proprietor disadvantages

unlimited legal liability, limited access to funds, all losses flow to 1 person

partnership

business owned by 2+ people

advantages of partnership

ease of formation, access to funding, diversity of owner skills, lower income tax consequences, losses are shared

disadvantages of partnership

possible unlimited legal liability, control and profits are shared, transfer of ownership is more difficult

corporation

business whose owners are stockholders/shareholders

advantages of corporation

greater access to funding, transfer of ownership is easier, limited legal liability

disadvantages of corporation

higher organization expense, additional reporting requirements, double taxation

Public company (C-corp)

offers securities and has those securities traded on open market

private company (S-corp)

private corporation sells its stock to select owners. TAXED LIKE PARTNERSHIP

financing activities

first step - how the company obtains funds. issue stock (paying a dividend), borrow money

investing activities

how company invests the funds: purchase property, plant, equipment and purchase investments.

operating activities

day-to-day operations: purchase inventory, provide services, costs to provide services to customers

revenues

inflows or other enhancements of assets

expenses

costs incurred to earn revenues

income statement

statement to summarize company’s revenues and expenses over a specific period of time

retained earnings

portion of net income that is not distributed as a dividend to stockholders

statement of stockholders equity

shows how stockholders equity changed from beginning to end of the year

balance sheet

reports company’s financial position at a point in time

accounting equation

assets = liabilities + equity

account

records the detailed records for a particular revenue, expense, dividend, asset, etc.

assets

economic resources bought expected to provide a future economic benefit

liabilities

represent the probable future sacrifices of economic benefits

stockholders equity

owners claims against assets

statement of cash flows

summarizes company inflows and outflows of cash

SEC - securities and exchange commission

protects investors and maintains the market

FASB- financial accounting standards board

setting financial accounting standards for public and private companies

AICPA - American Institute of Certified Public Accountants

advocates for CPAs to set ethical standards for auditing companies and organizations

Accounting Standard Setting Process

1. Simplify user access by codifying all GAAP in one place

2. ensure codified content represents GAAP

3. create codification research system that is up to date

Relevance

information capable of making a difference

materiality

information is sufficient in nature

predictive value

information can help evaluate past, present, future events

completeness

information needed for faithful representation

neutrality

information is free of bias

freedom from error

amounts reported reflect best available information

comparability

quality that enables users to compare the similarities and differences

verifiability

information is as objective as possible, can be duplicated

timeliness

information is available at a time in which can make a difference

understandibility

user should understand the information presented in the context of the decision they are making

historical cost principle

companies measure transaction at the monetary value at that time

fair value principle

companies should adjust historical costs to fair values

full disclosure

information that meets the qualitative characteristics of accounting information

revenue recognition principle

revenue should be recognized when company transferred promised goods and company receives consideration for goods and services to customers.

expense recognition (matching principle)

expenses should be recorded (matched) in same accounting period to produce revenue

economic entity assumption

financial statements dont involve personal transactions

monetary unit assumption

users assume that amounts expressed on the financial statements are in terms of currency

periodicity assumption

arbitrary time periods are made and used to compile information

going concern assumption

users of financial statements can assume that businesses will exist in foreseeable future

10-K

type of company that has to file a annual report