WGU - C213

Accounting

A system of providing "quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions."

American Institute of Certified Public Accountants (AICPA)

The professional organization of certified public accountants in the United States.

Balance Sheet

Document which reports the resources of a company (the assets), the company's obligations (the liabilities), and the owners' equity, which represents how much money has been invested in the company by its owners.

Bookkeeping

The preservation of a systematic, quantitative record of an activity.

Certified Public Accountant

A person who has taken a minimum number of college-level accounting classes, has passed the dreaded CPA exam, and has met other requirements set by his or her state.

Financial Accounting

The name given to accounting information provided for and used by external users.

Financial Accounting Standards Board (FASB)

Private, non-profit body that sets accounting standards in the United States.

Financial Statements

The three primary financial information documents: the balance sheet, income statement, and statement of cash flows.

Income Statement

This document reports the amount of net income earned by a company during a period, with annual and quarterly income statements being the most common.

Internal Revenue Service (IRS)

The government agency responsible for tax collection and tax law enforcement.

International Accounting Standards Board (IASB)

An independent, international body formed to develop worldwide accounting standards.

International Financial Reporting Standards (IFRS)

The accounting standards produced by the IASB.

Managerial Accounting

The name given to accounting systems designed for internal users.

Public Company Accounting Oversight Board (PCAOB)

A private, non-profit organization that effectively serves as an arm of the SEC in registering, inspecting, and disciplining the auditors of all publicly traded companies.

Statement of Cash Flows

This document reports the amount of cash collected and paid out by a company in the following three types of activities: operating, investing, and financing.

Accounting Equation

Assets = Liabilities + Owners' Equity

Accumulated Other Comprehensive Income

The source of these increased assets

Assets

Assets are the firm's economic resources, formally defined as "probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Balance Sheet

A statement of financial position shows the financial resources the company owns or controls and the claims on those resources

Book Value

The book value of an asset is the asset's cost minus the asset's accumulated depreciation.

Comparability

Information that becomes much more useful when it can be related to a benchmark or standard

Conservatism

a pervasive factor in accounting, can be summarized as follows: When in doubt, recognize all losses but don't recognize any gains.

Consistency

The consistency principle states that, once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods.

Earnings Per Share (EPS)

EPS tells the owner of one share of stock what he or she really wants to know

Entity Concept

The idea that personal financial activity is kept separate from business financial activity

Expenses

The amount of assets consumed from the performance of business operations and thus are the opposite of revenues

External Audit

audit conducted by external (independent) qualified accountant(s)

Financing Activities

Those activities whereby cash is obtained from, or repaid to, owners and creditors

Gains

Refers to money made on activities outside the normal business of a company

Going Concern Assumption

allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments.

Historical Cost Convention

An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition

Income Statement

A company's financial performance for a specified period of time.

Investing Activities

The purchase and sale of land, buildings, and equipment. Investing activities also include buying and selling stocks of other companies

Liabilities

the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events

Liquidity

the ease with which the item can be turned into cash

Losses

Refers to money lost on activities outside the normal business of a company

Materiality

the question of whether an item is large enough to make any difference to anyone

Net Assets

total assets minus total liabilities. In a sole proprietorship the amount of net assets is reported as owner's equity. In a corporation the amount of net assets is reported as stockholders' equity.

Net Income

the difference between revenues and expenses. If revenues exceed expenses, net income results. If, on the other hand, expenses exceed revenues, there will be a net loss

Net Loss

the difference between revenues and expenses. If revenues exceed expenses, net income results. If, on the other hand, expenses exceed revenues, there will be a net loss

Notes to Financial Statements

These provide additional information pertaining to a company's operations and financial position and are considered to be an integral part of the financial statements.

Operating Activities

Those activities involved in producing and selling goods and services and thus comprise the day-to-day business of a company

Owners' Equity

portion of the assets that the owners of the organization can really call their own

Paid-in Capital

The value of the assets given in exchange for shares of stock.

Relevance

A qualitative characteristic in accounting. Relevance is associated with information that is timely, useful, has predictive value, and is going to make a difference to a decision maker.

Reliability

A qualitative characteristic in accounting. It is achieved when information is verifiable, objective (not subjective) and you can depend on it.

Retained Earnings

Represent the portion of stockholders' equity (resulting from cumulative profitable operations) that has not been paid to the owners as dividends

Revenue

The amount of assets created through the performance of business operations

Statement of Cash Flows

Individual cash flow items that are classified according to three main activities: operating, investing, and financing.

Stockholders' Equity

The portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings

Time Period Concept

The time period principle is the concept that a business should report the financial results of its activities over a standard time period, which is usually monthly, quarterly, or annually.

Treasury Stock

Shown as a subtraction in the stockholders' equity section of the balance sheet

Other Assets

Long-term assets that are not suitable for reporting under any of the previous classifications

Accounts Payable

The flip side of accounts receivable—when one company sells on credit, creating for itself an account receivable, the company on the other side of the transaction is buying on credit, creating an account payable.

Accounts Receivable

Amounts owed to a business by its credit customers and are usually collected in cash within 10 to 60 days.

Accumulated Depreciation

Reflects the wear and tear, or depreciation, of these items since they were originally purchased.

Accumulated Other Comprehensive Income

The grouped together and reported changes which companies experience increases and decreases in equity each year because of the movement of market prices or exchange rates

Additional Paid-in Capital

Invested by stockholders that exceeds the par value of the issued shares.

Asset

Probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events.

Asset Mix

The proportion of total assets in each asset category, is determined to a large degree by the industry in which the company operates.

Balance Sheet

A listing of an organization's assets and of its liabilities at a certain time.

Capital Lease Obligations

A long-term liability in the balance sheet.

Cash

Coins and currency as well as the balances in company checking and savings accounts.

Common Stock

Stockholders' equity investment

Current Assets

Cash, accounts receivable, and inventory.

Current Liabilities

Those obligations expected to be paid within one year, the most common being accounts payable.

Current Portion of Long-term Debt

Some liabilities, such as mortgages, are payable in equal monthly installments over a specified number of years. The portion of these liabilities that is payable within 12 months from the balance sheet date.

Deferred Income Tax Liability

The income tax expected to be paid in future years on income that has already been reported in the income statement but which, because of the tax law, has not yet been taxed.

Derivative

A financial instrument, such as an option or a future, that derives its value from the movement of a price, an exchange rate, or an interest rate associated with some other item.

Disclosure

Convey the details in a narrative note without ever including anything in the financial statements themselves.

Equity

Residual interest in the assets of an entity that remains after deducting its liabilities.

Executory Contract

It is an exchange of promises about the future.

Financing Mix

The percentage of total financing (liabilities plus equity) in each individual category.

Intangible Assets

Assets that have no physical or tangible characteristics.

Inventory

The name given to goods held for sale in the normal course of business.

Investment Securities

Composed of publicly traded stocks and bonds.

Liability

Probable future sacrifice of economic benefit arising from a present obligation of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Long-term Debt

Long-term notes, bonds, mortgages, and similar obligations on the balance sheet

Long-term Investments

Those assets that you expect to still be around next year when you prepare the balance sheet again.

Noncontrolling Interest

Arises when a corporation has subsidiaries that are not 100 percent owned by the corporation.

Par Value

The market value of the shares at issuance.

Preferred Stock

Stockholders' equity investment

Prepaid Expenses

Payments in advance for business expenses.

Property

Plant, and Equipment, Exactly what the label implies: land, buildings, machinery, tools, furniture, fixtures, and vehicles used by a company in conducting its business activities.

Recognition

Boil down all the estimates and judgments into one number and report that one number in formal financial statements.

Retained Earnings

The cumulative amount of a corporation's profits that have been reinvested on behalf of the stockholders

Short-term Loans Payable

Formal, interest-bearing loans that are expected to be paid back within one year.

Stockholders' Equity

The difference between assets and liabilities in a corporation

Transaction Analysis

The process of determining how an economic event impacts the financial statements

Treasury Stock

The repurchased shares when a company buys back its own shares

Unearned Revenue

Represents Sears's obligation to provide service to customers who have paid Sears for a service they have not yet received.

Valuation

Once it has been determined that an item should be recognized in financial statements, the question then arises about what dollar amount to assign to the item.

Accrual Accounting

The process that accountants use in adjusting raw transaction data into refined measures of a firm's economic performance.

Comprehensive Income

The number used to reflect an overall measure of the change in a company's wealth during the period

Cost of Goods Sold

When a business sells goods to customers, the cost of the goods sold is recorded as an expense

Discontinued Operations

Report the Hughes results in a separate category called income from discontinued operations.

Earnings Per Share (EPS)

The amount of net income associated with each share of stock.

Economic Value Added

A system of earnings-based compensation

Expanded Accounting Equation

Assets = Liabilities + Paid-in Capital + (Revenues - Expenses - Dividends)

Expenses

The value of resources used in generating the reported revenue.