Financial Accounting Principles - Chapter 1 & 2

Measurement Principle (Cost Principle)

Cost is measured on a cash or equal to cash basis

Revenue Recognition Principle

Revenue is recognized when it is earned and realizable, regardless of when cash is received

Expense Recognition Principle

Expenses are recognized when the related revenues are earned, matching costs with revenues

Full Disclosure Principle

All info that affects the understanding of a company's financial statements must be disclosed in the statements or in the notes to the statements.

Going Concern Assumption

A company will continue to operate for the foreseeable future and not be forced to liquidate its assets.

Monetary Unit Assumption

Expresses transactions and events in monetary units

Time Period Assumption

Allows a company's activities to be reported in distinct time intervals, such as months or years

Cost-Benefit Constraint

The benefits of providing financial information should outweigh the costs associated with obtaining and disseminating that information

Materiality Constraint

Info has the ability to influence decisions

Conservatism & Industry Practice Constraint

Guideline that advises reporting less optimistic estimates when faced with uncertainty, combined with the need to conform to common practices within an industry

Ledger

Record of accounts and balances

Chart of Accounts

A listing of all ledger accounts & ID #s

Journal

Complete record of all transactions made by organization in chronological order

General Ledger

The primary accounting record that contains all financial accounts, transactions, and balances used by an organization.

Account

A record summarizing all transactions related to a specific asset, liability, equity, revenue, or expense in the accounting system

Fraud Triangle

pressure, opportunity, and rationalization.

Process From Transaction to Financial Statement (IARP)

1. Identify

2. Analyze

3. Record

4. Post

Journalizing

The process of recording financial transactions in a journal in chronological order before they are posted to the ledger.

Posting

The process of transferring information from the journal to the ledger accounts

Debt Ratio

Total Liabilities / Total Assets

Return on Assets

Net Income / Avg Total Assets

Dividends, Expenses, Assets (DEA)

Increase Debits and Decrease Credits

Liabilities, Owners Equity, Revenues

Increase Credits and Decrease Debits

Functions of Accounting (IRC)

1. Identifying

2. Recording

3. Communicating

Trial Balance

List of all ledger accounts and balances in either debit or credits