Intro to Financial Accounting (Rutgers) chapter 1

Accounting

The information system that identifies, records, and communicates the economic events of an organization to interested users

Assets

Resources a business owns

Balance sheet

A financial statement that reports the assets, liabilities, and stockholders' equity at a specific date

Basic accounting equation

Assets = Liabilities + Stockholders' Equity

Bookkeeping

A part of accounting that involves only the recording of economic events

Common Stock

Term used to describe the total amount paid in by stockholders for the shares they purchase

Convergence

The process of reducing the differences between U.S. GAAP and IFRS

Corporation

A business organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock

Dividend

A distribution by a corporation to its stockholders

Economic entity assumption

An assumption that requires that the activities of the entity by kept separate and distinct from the activities of its owner and all other economic entities

Ethics

The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair

Expanded accounting equation

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

Expenses

The cost of assets consumed or services used in the process of earning revenue

Fair value principle

An accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

Faithful representation

Numbers and descriptions match what really existed or happened--the are factual

Financial accounting

The field of accounting that provides economic and financial information for investors, creditors, and other external users

Financial Accounting Standards Board (FASB)

A private organization that establishes generally accepted accounting principles in the US

Generally Accepted Accounting Principles (GAAP)

Common standards that indicate how to report economic events

Historical cost principle

An accounting principle that states that companies should record assets at their cost

Income Statement

A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time

International Accounting Standards Board (IASB)

An accounting standard-setting body that issues standards adopted by many countries outside of the United States

International Financial Reporting Standards (IFRS)

International accounting standards set by the IASB

Liabilities

Creditor claims against total assets

Managerial accounting

The field of accounting that provides internal reports to help users make decisions about their companies

Monetary unit assumption

An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money

Net income

The amount by which revenues exceed expenses

Net loss

The amount by which expenses exceed revenues

Partnership

A business owned by two or more persons associated as partners

Proprietorship

A business owned by one person

Relevance

Financial information that is capable of making a difference in a decision

Retained earnings statement

A financial statement that summarizes the changes in retained earnings for a specific period of time

Sarbanes-Oxley Act (SOX)

Law passed by Congress intended to reduce unethical corporate behavior

Securities and Exchange Commission (SEC)

A governmental agency that oversees US financial markets and accounting standard-setting bodies

Statement of cash flows

A financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time

Stockholders' equity

The ownership claim on a corporation's total assets

Transactions

The economic events of a business that are recorded by accountants