Int Acc Ch1

Concept stuff

Assets

A present right of an economic entity to an economic benefit

Liability

A present obligation of an entity to transfer an economic benefit

Equity

The residual interest in the assets of an entity that remains after deducting its liabilities

Investments by Owners

Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests in it

Distributions to Owners

Decreases in equity of an entity resulting from transferring assets, rendering services, or incurring liabilities by the entity to owners

Comprehensive Income

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners

Revenues

Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities

Gains

Increases in equity (net assets) from transactions and other events and circumstances affecting an entity except those that result from revenues or investments by owners

Losses

Decreases in equity (net assets) from transactions and other events and circumstances affecting an entity except those that result from expenses or distributions to owners

Economic Entity Assumption

All economic events can be identified with a particular economic entity

ex. Amazon buying something for it’s own use, not for the use of Jeff Bezos individually

Going Concern Assumption

In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely

Periodicity Assumption

The life of a company can be divided into artificial time periods to provide timely information to external users

Monetary Unit Assumption

In the United States, financial statement elements should be measured in terms of the U.S. dollar

Predictive value

Information is useful in predicting the future

Relevance

Pertinent to the decision at hand

Timeliness

Information is available prior to the decision

Confirmatory Value

Information confirms expectations

Understandability

Users understand the information in the context of the

decision being made

Faithful representation

Agreement between a measure and the phenomenon

it purports to represent

Materiality

Concerns the relative size of an item and its effect on

decisions

Comparability

Important for making interfirm comparisons

Neutrality

The absence of bias

Recognition

The process of admitting information into financial statements

Consistency

Applying the same accounting practices over time

Cost effectiveness

Requires consideration of the costs and value of information

Verifiability

Implies consensus among different measurers

Historical cost principle

The original transaction value upon acquisition

Revenue recognition

Criteria usually satisfied for products at point of sale

Full-disclosure principle

All information that could affect decisions should be reported

Source documents

Used to identify and process external transactions

Transaction analysis

Determine the dual effect on the accounting equation

Journal

Record of the dual effect of a transaction in debit/credit form

Posting

Transferring debits and credits from the journal to the ledger

Unadjusted trial balance

List of accounts and their balances before recording adjusting entries

Adjusting entries

Updates to account balances recorded at the end of a reporting period

Adjusted trial balance

List of accounts and their balances after recording adjusting entries

Financial statements

Primary means of disseminating information to external decision makers

Closing entries

To zero out the temporary accounts

Post-closing trial balance

List of accounts and their balances after recording closing entries