Financial Accounting Chapter 1

Accounting

planning, recording, analyzing, and interpreting financial information

Accounting Equation

Assets = Liabilities + Equity

Accounts Payable

A short-term liability that will be paid in the future.

Accounts Receivable

The right to receive cash in the future from customers for goods sold or for services performed.

Assets

Economic resources (things of value) owned by a firm.

Audit

An examination of a company's financial statements and records

Balance Sheet

Reports on the assets, liabilities, and stockholders' equity of the business as of a specific date.

Certified Management Accountant (CMA)

Certified professionals who specialized in accounting and financial management knowledge. They typically work for a single company.

Certified Public Accountant (CPA)

Licensed professional accountants who serve the general public.

Common Stock

Represents the basic ownership of a corporation.

Contributed Capital

owner contributions to a corporation

Corporation

A business organized under state law that is a separate legal entity.

Cost Principle

A principle that states that acquired assets and services should be recorded at their actual cost.

Creditor

Person or business to whom money is owed.

Dividend

a distribution of earnings to the stockholders of a corporation

Economic Entity Assumption

An organization that stands apart as a separate economic unit.

Equity

the owner's claims to the assets of the business

Expenses

The cost of selling goods or services

Faithful Representation

information that is complete, neutral, and free from error

Financial Accounting

The field of accounting that focuses on providing information for external decision makers.

Financial Accounting Standards Board (FASB)

The private organization that oversees the creation and governance of accounting standards in the United States.

Financial Statements

Business documents that are used to communicate information needed to make business decisions.

Generally Accepted Accounting Principles (GAAP)

accounting guidelines that govern the content and form of financial reports

Going Concern Assumption

The assumption that the company will continue in operation for the foreseeable future.

Income Statement

Reports the net income or net loss of the business for a specific period.

International Accounting Standards Board (IASB)

The private organization that oversees the creation and governance of International Financial Reporting Standards (IFRS).

International Financial Reporting Standards (IFRS)

A set of global accounting guidelines, formulated by the International Accounting Standards Board (IASB).

Liabilities

Debts that are owed to creditors

Limited Liability Company (LLC)

A company in which each member is only liable for his or her own actions.

Managerial Accounting

the area of accounting that focuses on reporting information to internal users

Monetary Unit Assumption

An assumption that requires that only those things that can be expressed in money are included in the accounting records.

Net Income

The amount by which revenues exceed expenses.

Net Loss

The amount by which expenses exceed revenues.

Partnership

A business with two or more owners and not organized as a corporation.

Retained Earnings

An amount earned by a corporation and not yet distributed to stockholders.

Return on Assets

net income/average total assets

Revenues

amounts earned by selling goods or services to customers

Sarbanes-Oxley Act (SOX)

Requires management to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Securites and Exchange Commission (SEC)

U.S. government agency that oversees the U.S. financial markets.

Sole Proprietorship

A business owned by one person

Statement of Cash Flows

Reports on a business's cash receipts and cash payments for a specific period.

Stockholder

A person who owns stock in a corporation.

Transaction

An event that affects the financial position of the business and can be measured with faithful representation.