Intermediate Accounting I - Chapters 1 to 3 Vocabulary Flashcards

Vocabulary flashcards covering core intermediate accounting topics from Chapters 1 through 3, including standard setting, conceptual framework, accounting cycle, adjusting/closing entries, income statement structure, and revenue recognition.

Financial Statements

The principal means through which a company communicates its financial information to external users, consisting of the balance sheet, income statement, statement of cash flows, and statement of stockholders' equity.

Generally Accepted Accounting Principles (GAAP)

The common set of standards, principles, and practices with substantial authoritative support that companies must follow when preparing financial statements.

FASB Accounting Standards Codification (ASC)

The single source of authoritative U.S. GAAP for nongovernmental entities established by the Financial Accounting Standards Board to simplify user access.

Qualitative Characteristics Hierarchy

The framework of qualities that make accounting information decision-useful, divided into fundamental qualities (Relevance and Faithful Representation) and enhancing qualities (Comparability, Verifiability, Timeliness, and Understandability) subject to the cost constraint.

Economic Entity Assumption

An accounting assumption that economic activity can be identified with a particular unit of accountability and kept separate and distinct from its owners and other business units.

Going Concern Assumption

An accounting assumption that the company will have a long enough life to fulfill its objectives, commitments, and legal obligations.

Monetary Unit Assumption

An accounting assumption that money is the common denominator of economic activity and that the monetary unit (e.g., the U.S. dollar) remains stable over time, ignoring inflation.

Periodicity Assumption

An accounting assumption that implies a company can divide its economic activities into artificial time periods such as monthly, quarterly, or yearly.

Expense Recognition Principle

The accounting principle that dictates expenses should be matched with the revenues they helped generate in the same accounting period.

Normal Account Balances

The rules determining whether debits or credits increase an account balance, where Dividends, Assets, and Expenses increase with Debits, while Liabilities, Owner's Equity, and Revenue increase with Credits.

Expanded Basic Accounting Equation

The detailed accounting formula expressing that Assets equal Liabilities plus Stockholders' Equity, broken down into Common Stock plus Retained Earnings plus Revenues minus Expenses minus Dividends.

T-Account

A basic accounting format shaped like a 'T' used to track individual general ledger account transactions, featuring the account title at the top, the debit side on the left, and the credit side on the right.

Permanent Accounts

Balance sheet accounts (assets, liabilities, and equity) that represent the basic financial position elements and carry their ending balances forward into future accounting periods.

Temporary Accounts

Income statement accounts (revenues, expenses, gains, losses) and dividends that represent changes in equity during a period and are zeroed out at the end of each accounting period.

Prepaid Expenses

Expenses paid in cash before they are used or consumed, initially recorded as assets and subsequently expensed as they expire over time.

Unearned Revenue

Cash received before goods or services are delivered, creating a performance obligation recorded as a liability until the performance obligation is satisfied.

Accrued Revenues

Revenues earned for services performed or goods provided that have not yet been received in cash or recorded at the end of the accounting period.

Accrued Expenses

Expenses incurred during an accounting period that have not yet been paid in cash or recorded, requiring an adjusting entry to record both the expense and a corresponding liability.

Bad Debt Expense

An estimated operating expense resulting from uncollectible accounts receivable, recorded with a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

Closing Process

The end-of-period accounting procedure that reduces all temporary account balances to zero by transferring revenues and expenses to Income Summary, and Income Summary and Dividends to Retained Earnings.

Multiple-Step Income Statement

An income statement format that separates operating transactions from non-operating transactions and highlights key performance subtotals such as Net Sales, Gross Profit, and Income from Operations.

Discontinued Operations

The disposal or planned disposal of a business component representing a strategic shift that has a major impact on operations, reported on the income statement net of tax below continuing operations.

Other Comprehensive Income (OCI)

Gains and losses that bypass net income but directly impact stockholders' equity, such as unrealized holding gains or losses on available-for-sale debt securities.

Comprehensive Income

The measure of all changes in equity during a period except those resulting from investments by owners and distributions to owners, calculated as $\text{Comprehensive Income} = \text{Net Income} + \text{Other Comprehensive Income}$.

Earnings per Share (EPS)

A financial ratio measuring the net income earned per common share, calculated as $\text{Earnings per Share (EPS)} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted-Average Number of Common Shares Outstanding}}$.

Five-Step Revenue Recognition Model

The principle-based framework under ASC 606 consisting of: 1) Identify the contract, 2) Identify performance obligations, 3) Determine transaction price, 4) Allocate transaction price, and 5) Recognize revenue when performance obligations are satisfied.