Accounting Process and Conceptual Framework Lecture Notes

Comprehensive vocabulary flashcards covering the accounting cycle, financial statement elements, and the Conceptual Framework for Financial Reporting.

Source Documents

The first step in the accounting process used to identify and analyze business transactions, including sales invoices, official receipts, purchase orders, and bank statements.

Journalizing

The process of recording transactions chronologically in the journal.

Double Entry System

A system where every transaction is recorded with at least $1$ debit and $1$ credit.

Journal

The book of original entry where transactions are first recorded.

Purchase Journal

A special journal used to record purchases of inventory on account.

Cash Disbursement Journal

A special journal used for transactions involving cash payments.

Sales Journal

A special journal used for recording sales on account.

Cash Receipt Journal

A special journal used for transactions involving cash collections.

General Journal

A journal used for all other transactions not recorded in special journals.

Posting

The third step of the accounting process, involving transferring debit and credit items from the journal to their respective accounts in the ledger.

Ledger

Known as the book of final entry.

General Ledger

A set of accounts shown in the trial balance.

Subsidiary Ledger

A ledger that provides a breakdown of the balances found in the general ledger.

Trial Balance

A list of general ledger accounts and their balances used to test the equality of debits and credits.

Adjusting Entries

Entries made to keep accounts up to date at year end.

Accrued Revenue

Revenue earned but not yet received, recorded as: Receivable $xx$, Revenue $xx$.

Accrued Expense

Expense incurred but not yet paid, recorded as: Expense $xx$, Liability $xx$.

Depreciation

The allocation of the cost of an asset, recorded as: Depn expense $xx$, Accum. depn $xx$.

Bad Debts

The estimated uncollectible accounts, recorded as: BDE $xx$, ADA $xx$.

Deferred Income (Liability Method)

Initial entry: Cash $xx$, Liability $xx$; Adjusting Entry: Liability $xx$, Income $xx$.

Deferred Income (Income Method)

Initial entry: Cash $xx$, Income $xx$; Adjusting Entry: Income $xx$, Liability $xx$.

Prepaid Expense (Asset Method)

Initial entry: Prepaid $xx$, Cash $xx$; Adjusting Entry: Expense $xx$, Prepaid $xx$.

Financial Statements

Reports comprising the SFP, SCI, SCIE, SCF, and Notes.

Closing Entries

Entries made to close nominal accounts, such as revenue and expense accounts, to the Income Summary.

Income Summary (Corporation)

The account closed to Retained Earnings in a corporate business structure.

Post Closing Trial Balance

An optional step containing only real accounts: Assets, Liabilities, and Equity.

Reversing Entries

An optional step applied to accruals and specific deferrals like the Income Method for unearned revenue or the Expense Method for prepaid expenses.

Predictive Value

A characteristic of relevant information that is capable of making a difference to user decisions by helping them predict future outcomes.

Confirmatory Value

A characteristic of relevant information that provides feedback about previous evaluations.

Faithful Representation

Information that faithfully represents the substance of a transaction rather than its legal form, being complete, neutral, and free from error.

Verifiability

An enhancing characteristic where different knowledgeable and independent observers could reach a consensus.

Comparability

An enhancing characteristic used to identify similarities and differences between information.

Understandability

Achieved by classifying, characterizing, and presenting information clearly and concisely.

Timeliness

Information available to decision-makers in time to be capable of influencing their decisions.

Reporting Entity

An entity required or choosing to prepare financial statements which is not necessarily a legal entity.

Consolidated FS

Financial statements of an entity that comprise more than one legal entity.

Asset

A present economic resource controlled by the entity as a result of past events.

Economic Resource

A right that has the potential to produce economic benefits.

Liability

A present obligation of the entity to transfer an economic resource as a result of past events.

Equity

The residual interest in the assets of the entity after deducting all its liabilities.

Income

Increases in assets or decreases in liabilities resulting in increases in equity, other than contributions from equity holders.

Expenses

Decreases in assets or increases in liabilities resulting in decreases in equity, other than contributions to equity holders.

Recognition

The inclusion of an item meeting the definition of an element in the statement of financial position or statement of financial performance.

Derecognition

The removal of all or part of a recognized asset or liability from the statement of financial position.

Historical Cost

Measurement based on the transaction price at the time of initial recognition, not reflecting changes in values except for impairment.

Current Value

Measurement updated to reflect conditions at the measurement date, including fair value, value in use, and fulfillment value.

Fair Value

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Value in Use

The present value of cash flows expected from the continuing use of an asset and its ultimate disposal.

Fulfillment Value

The present value of cash flows expected to settle a liability.

Current Cost (Asset)

The consideration that would be paid at the measurement date plus the transaction costs to acquire an equivalent asset.

Current Cost (Liability)

The consideration that would be received for an equivalent liability at the measurement date minus transaction costs that would be incurred.

Financial Capital

Capital defined as net assets or nominal monetary units.

Physical Capital

Capital defined as productive capacity, such as units of output per day.

Profit (Financial Capital Maintenance)

$\text{Net Asset End} - \text{Net Asset Beg}$ after excluding transactions with owners.

Profit (Physical Capital Maintenance)

$\text{Productive Capacity End} - \text{Productive Capacity Beg}$ after excluding transactions with owners.

IASB

International Accounting Standards Board, assisted by the Conceptual Framework to develop IFRS Standards.

Exit Price

A measurement type represented by Fair Value, Value in Use, and Fulfillment Value.

Entry Price

A measurement type represented by Current Cost.

Neutrality

A component of faithful representation that requires information to be without bias in its selection or presentation.

Objective of Financial Reporting

To provide financial information that is useful to users in making decisions relating to providing resources to the entity.