Chapter 1 Notes: Introduction to Accounting and GAAP

Vocabulary-style flashcards covering key concepts from the lecture notes on accounting, GAAP, and related topics.

Accounting

An information and measurement system that identifies, records, and communicates an organization's business activities.

Accounting process

The sequence of steps: identify transactions/events, record/measure them, and communicate the information.

External users

Persons outside the organization who use accounting information (e.g., shareholders, lenders, external auditors, regulators, and certain managers such as HR managers).

Internal users

People inside the organization who use accounting information (e.g., purchasing, production, R&D, and marketing managers).

Private accounting

Accounting opportunities within a single company (in-house) rather than serving external clients.

Public accounting

Accounting services provided to external clients, including auditing, taxation, and advisory services.

Artificial Intelligence (AI) in accounting

Use of software to perform repetitive tasks; accountants help develop AI systems and analyze reports.

Data analytics

Process of analyzing data to identify meaningful relationships and trends.

Data visualization

Graphical presentation of data to help decision makers understand information.

Ethics (in accounting)

Beliefs about right and wrong guiding the trustworthiness of information and accounting decisions.

GAAP (Generally Accepted Accounting Principles)

A framework ensuring information is relevant and faithfully represented; set by FASB under SEC oversight.

FASB (Financial Accounting Standards Board)

The body that sets GAAP; authority provided by the SEC.

SEC (Securities and Exchange Commission)

U.S. government agency that oversees GAAP for companies that sell stock or debt to the public.

IASB (International Accounting Standards Board)

Organization that issues International Financial Reporting Standards (IFRS).

IFRS (International Financial Reporting Standards)

Global accounting standards addressing preferred practices; similar to U.S. GAAP.

Conceptual Framework

Structure outlining objectives, qualitative characteristics, elements, and recognition/measurement for financial reporting.

Revenue Recognition Principle

Recognize revenue when goods or services are provided and when the amount expected to be received is measurable.

Full Disclosure Principle

Provide notes/details behind financial statements that could influence users’ decisions.

Expense Recognition Principle (Matching Principle)

Record expenses in the same period as the revenues they generate.

Measurement Principle (Cost Principle)

Accounting information is based on actual cost and is objective.

Accounting equation (basic)

Assets = Liabilities + Equity; foundational equation for all transactions.

Expanded accounting equation

Shows how external and internal transactions affect assets, liabilities, and components of equity (e.g., contributed capital, retained earnings, dividends, revenues, expenses).

External transactions

Exchanges of value between two entities that affect the accounting equation.

Internal transactions

Exchanges within a single entity that may or may not affect the accounting equation.

Dividends

Distributions of profits to shareholders; cash dividends provide cash, stock dividends issue additional shares.

Retained earnings

Accumulated net income kept in the business for growth.

Contributed capital

Capital contributed by owners to the company (funds/assets provided).

Common stock

Equity representing ownership shares in a corporation.

Revenues

Increases in net assets from delivering goods or services.

Expenses

Costs incurred to earn revenues.

Net income

Revenues minus expenses; the profit for the period.