financial accounting chapter 2

Account

A record that summarizes all the changes to a specific asset, liability, equity, revenue or expense

Accounting cycle

The full process of recording and processing all financial transactions of a company, from the initial transaction to the financial statements

Chart of accounts

A list of all accounts used by a company in its general ledger, organized by category

Comparability

The ability to compare financial information across different companies or time periods

Consistency

Using the same accounting methods over time to ensure financial statements are comparable

Cost constraints

The idea that the benefits of providing accounting information should outweigh the costs of doing so

Credit

An entry that increases liabilities and equity or decreases assets and expenses

Debit

An entry that increases assets and expenses and decreases liability and equity

Double entry accounting

A system where every transaction affects at least two accounts and the accounting equation stays in balance

Equity

The owners claim to the assets of the business after liabilities are deducted

Events

Internal or external occurrences that affect the financial position a business and require accounting recognition

Faithful representation

Financial information that accurately reflects a company’s real world economic activities

Full disclosure principle

The requirement that all information that might affect a readers understanding of financial statements be included

General leader

A complete record of all financial transactions organized by accounts

Going concern assumption

The assumption that a company will continue to operate indefinitely unless there is evidence to the contrary

Historical cost principle

Assets are recorded at their original purchase cost, not market value

Journal

A chronological record of all business transactions before they are posted to the ledger

Liabilities

Obligations or debts that a company owes to outsiders

Monitory unit assumption

The assumption that financial information is reported in a stable currency

Normal balance

The side of the account that increases the accounts balance under double entry accounting

Periodically assumption

The idea that the ongoing life of a business can be divided into time periods for reporting

Faithful representation

Financial information that accurately reflects a company’s real world economic activity

Full disclosure principle

The requirement that all information that might affect a readers understanding of financial statements be included

General leader

A complete record of all financial transactions organized by account