Accounting Principles: Chapter 1 Overview

A collection of 35 flashcards covering key concepts from Chapter 1, focusing on accounting principles, activities, users, financial statements, ethical standards, and assumptions in accounting.

Accounting

The process of identifying, measuring, and communicating financial information.

Identification

The first activity in accounting, selecting economic events to record.

Recording

The second activity in accounting, which involves classifying and summarizing economic events.

Communication

The third activity in accounting, preparing reports and interpreting information for users.

Internal Users

Individuals within the organization who use accounting data to make decisions.

External Users

Individuals outside the organization who use financial information to make investment, lending, and other decisions.

Ethics

The standards of conduct that guide decision-making and behavior in accounting.

Financial Accounting Standards Board (FASB)

The primary body responsible for establishing accounting standards in the United States.

Securities and Exchange Commission (SEC)

U.S. government agency responsible for enforcing federal securities laws and regulating the securities industry.

International Accounting Standards Board (IASB)

An independent organization that develops and approves International Financial Reporting Standards (IFRS).

Generally Accepted Accounting Principles (GAAP)

A set of accounting standards and principles widely accepted in the United States.

Relevance

The quality of accounting information that makes it capable of making a difference in decision making.

Faithful Representation

The quality of accounting information that ensures it accurately reflects the economic events it represents.

Historical Cost Principle

The principle that requires assets to be recorded at their cost at the time of acquisition.

Fair Value Principle

The principle that requires assets and liabilities to be reported at their fair market value.

Monetary Unit Assumption

The assumption that only transactions that can be expressed in monetary terms are recorded in the accounting records.

Economic Entity Assumption

The assumption that a business's financial activities are separate from those of its owners and other entities.

Proprietorship

A form of business ownership owned by a single individual.

Partnership

A form of business ownership where two or more individuals share ownership.

Corporation

A legal entity with ownership divided into shares of stock, providing limited liability to its owners.

Owner's Equity

The residual interest in the assets of a business after deducting liabilities.

Assets

Resources owned by a business that provide future economic benefits.

Liabilities

Obligations or debts that a business owes to external parties.

Net Income

The amount by which revenues exceed expenses over a specific period.

Income Statement

A financial statement that summarizes revenues and expenses over a specific time period.

Owner’s Equity Statement

A financial statement that outlines changes in owners' equity for a specific period.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and owner’s equity at a specific point in time.

Statement of Cash Flows

A financial statement providing information about cash receipts and payments for a specific period.

Dual Effect

The concept that every transaction affects at least two accounts in the accounting equation.

Revenues

Increases in owner's equity resulting from business activities that earn income.

Expenses

Outflows or uses of assets that reduce owner’s equity in the process of earning revenue.

Drawings

Withdrawals of cash or other assets made by the owner for personal use.

Financial Scandals

Incidents of unethical behavior in accounting that have led to significant financial losses.

Sarbanes-Oxley Act (SOX)

Legislation aimed at improving the accuracy of financial reporting and protecting investors from corporate fraud.

Capital

The amount invested by owners in the business.

Financial Reporting

The process of presenting financial information in a structured manner to users.

Tabular Analysis

A method used to analyze the effects of transactions on the accounting equation in a table format.

Assets =

Liabilities + Equity

what are the 4 prepared financial statements?

Income Statement, Balance Sheet, Statement of Cash Flows, Owner’s equity statement.