Financial Accounting

Financial Accounting

The identification, measurement, and communication of financial information about business activities to stakeholders to aid in decision making.

Business Activities

Actions performed by a company which include Financing, Investing, and Operating Activities.

Stakeholders

Individuals or groups that have an interest in the company, such as stockholders, creditors, and customers.

Financial Statements

Records that communicate financial information about a company, including the balance sheet, income statement, cash flow statement, and statement of owners' equity.

Balance Sheet

A financial statement that presents a snapshot of an entity's assets and claims against those assets at a specific date.

Income Statement

A financial report that measures and reports the financial results of a company’s operations over a period of time.

Statement of Cash Flows

A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.

Going Concern Assumption

The assumption that a company will continue to operate for the foreseeable future and not go bankrupt.

Monetary Unit Assumption

The assumption that money is the common denominator of economic activity and provides a foundation for accounting measurement.

Revenue Recognition Principle

The principle that requires revenue to be recognized when it is earned, regardless of when cash is received.

Expense Recognition Principle

The guideline which states that expenses should be recognized in the same period as the revenues they help generate.

Timeliness

An enhancing qualitative characteristic that states information should be available when it's needed to make decisions.

Present Value

The current worth of a future sum of money, discounted at the appropriate interest rate.

Future Value

The value of a current asset at a specified future date based on an assumed rate of growth.

Annuity

A series of equal cash flows occurring at regular intervals.

Cost Constraint

The principle stating that the costs of providing information should not exceed the benefits derived from it.

GAAP

Generally Accepted Accounting Principles; the rules and standards for financial reporting and accounting.

FASB

Financial Accounting Standards Board; the organization responsible for establishing accounting and financial reporting standards.

IASB

International Accounting Standards Board; the body responsible for developing international financial reporting standards (IFRS).

Conceptual Framework

A coherent system of interrelated objectives and fundamental concepts that guide financial reporting.

Fair Value Principle

The principle that assets and liabilities should be recorded at their fair value, or price that would be received to sell an asset.

AICPA

American Institute of Certified Public Accountants; a professional organization for CPAs that also helps set ethical standards.

Interest

The cost of borrowing money, usually expressed as a percentage of the principal.

Simple Interest

Interest calculated only on the principal amount, or on that portion of the principal amount which remains unpaid.

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.