Chapter 1: Introduction to Accounting and Business - Vocabulary Flashcards

Vocabulary flashcards covering key terms and concepts from Chapter 1 notes.

GAAP

Generally Accepted Accounting Principles; the collection of accounting standards, principles, and assumptions used to report financial information in the United States.

FASB

Financial Accounting Standards Board; the primary body responsible for developing accounting standards in the United States.

SEC

Securities and Exchange Commission; oversees accounting and financial disclosures for public companies.

IASB

International Accounting Standards Board; sets international accounting standards used outside the United States.

Accounting Standards Codification

FASB's electronic database that contains all GAAP accounting standards.

Accounting Standards Updates

FASB's process for updating the Codification with changes to GAAP.

Monetary unit assumption

Financial reports are expressed in a single monetary unit (currency).

Time period assumption

A company can report economic activities over specific periods of time.

Business entity assumption

Financial data is limited to activities of the business; owners are separate from the business.

Going concern assumption

Assumes the business will continue operating into the foreseeable future.

Assets

Resources owned or controlled by a company expected to provide future benefits.

Liabilities

Obligations or debts owed to outsiders.

Stockholders' equity

Owner’s claim on assets after liabilities; equals assets minus liabilities and includes common stock and retained earnings.

Common stock

Ownership shares issued to investors; part of stockholders' equity.

Retained earnings

Cumulative net income retained in the company after dividends.

Revenue

Inflows from providing goods or services; includes fees earned, sales, rent revenue, etc.

Expenses

Outflows or using up assets to earn revenue; reduce stockholders' equity.

Net income

Revenue minus expenses; also called profit or earnings.

Net loss

Expenses exceed revenues, resulting in negative earnings.

Fees earned

Revenue from services provided; a form of revenue separate from sales.

Accounts receivable

Amounts customers owe the company; an asset.

Accounts payable

Amounts the company owes to suppliers; a liability.

Dividends

Distributions of earnings to stockholders; reduce cash and stockholders' equity.

Transaction

An economic event that changes a company’s financial condition or results.

Accounting equation

Assets = Liabilities + Equity; fundamental relationship in accounting.

Equity

Owner’s claim on assets after liabilities; synonym for net assets in some contexts.

Balance sheet

Financial position of a company at a date: assets, liabilities, stockholders’ equity.

Income statement

Reports revenues and expenses over a period to show net income or loss.

Statement of stockholders’ equity

Shows changes in stockholders’ equity over a period, including retained earnings and common stock.

Statement of cash flows

Shows cash receipts and payments over a period in operating, investing, and financing activities.

Revenue recognition principle

Revenue is recognized when earned and realizable, not necessarily when cash is received.

Expense recognition principle (matching principle)

Expenses are recorded in the same period as the related revenues.

Cost principle (historical cost principle)

Assets are recorded at their original transaction price.

Three types of business types

Service, merchandising, and manufacturing businesses; service provides services, merchandising sells products, manufacturing changes inputs into products.

Proprietorship

A business owned by one person; easy to organize and common in the U.S.

Partnership

A business owned by two or more individuals; resources and responsibilities shared.

Corporation

A separate legal taxable entity owned by stockholders; can raise capital by issuing stock.

LLC (Limited liability company)

A hybrid form combining features of a partnership and a corporation with liability protection.

Debt ratio

Ratio of liabilities to stockholders’ equity; liabilities divided by equity; measures financial leverage.

Descriptive analytics

Describes past outcomes and patterns in data.

Diagnostic analytics

Explains results by identifying relationships among data.

Predictive analytics

Uses statistical methods to predict future outcomes.

Prescriptive analytics

Recommends actions to achieve company goals.

Ethics

Moral principles guiding conduct; essential for trustworthy accounting information.

Role of accounting in business

An information system that measures, records, and reports financial information to aid decision making.