Chapter 1: Accounting 1A (Financial and Managerial Accounting) Mcgraw-hill

Accounting

A comprehensive system for collecting, analyzing, and communicating financial information

accounting equation

Assets = Liabilities + Equity

assets

Any type of tangible or intangible resources that can be measured in monetary terms.

audit

Sense of hearing

auditors

Individuals hired to inspect and review financial reports and information systems.

balance sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

bookkeeping

A part of accounting that involves only the recording of business transactions.

business entity assumption

Principle that requires a business to be accounted for separately from its owner(s) and from any other entity.

common stock

Corporation's basic ownership share; also generically called capital stock. Equity without priority for dividends.

contributed capital

The amount invested in a corporation by its owners, the stockholders. Also called paid-in capital.

corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts.

cost principal

All transactions must be recorded at its cost.

dividends

Company's share profits to the shareholders based on the corporation's performance.

equity

Is the claim on assets. ______ is equal to assets - Liabilities. also known as net assets.

expenses

An _______ is an outflow of money to another person or group to pay for an item or service, or for a category of costs.

expanded accounting equation

assets=liabilities+owner's equity-drawing accounts+revenue-expenses

expense recognition principal

Accounting principle that dictates that the recognition of expenses is related to net changes in assets and earning revenues, that is, "let the expense follow the revenues."

external users

Persons using accounting information who are not directly involved in running the organization.

financial accounting

Accounting information and analyses prepared for people outside the organization.

Focuses on reporting information to external users.

fasb

The organization primarily responsible for evaluating, setting, or modifying GAAP.

sec

who sets the gaap?

sec

a government agency who has legal authority to set the generally accepted accounting principals.

income statement

A financial statement showing the revenue and expenses for a fiscal period.

internal users

Persons using accounting information who are directly involved in managing the organization.

international accounting standards board

sets the international financial reporting standards for a number of countries including the inited states.

liabilities

A financial obligation of a business that it is required to repay in the future

matching principal

Principal requiring that expenses incurred in an accounting period are matched with revenue.

measurement principal

the accounting information is based on actual cost. Two names answer is the "M" one

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

Also called profit. Calculated as the Revenue - Expenses

net loss

The difference between total revenue - total expenses where total expenses are greater.

partnership

A business in which two or more persons combine their assets and skills.

proprietorship

A business owned by one person

retained earnings

Earnings retained in the business.

return on assets

Net Income/ average total assets.

revenue recognition principal

Accoutning principle that revenue should be recognized in the accoutning period in which it is earned. Generally at the point of sale.

revenue

Earned from selling products or services to customers.

sarbanes-oxley act

A law passed by Congress that requires the CEO and CFO to certify that their firm's financial statements are accurate. A lot of company's CEO's went to prison for violating this act.

shareholders

Investors who purchase shares of stock in a corporation.

statement of cash flows

A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, and financing.

statement of retained earnings

Reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period. Shows the differences of retained earnings from beginning to the end of a period.

time period assumption

Assumption that an organization's activities can be divided into specific time periods such as months. quarters, or years.