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accounting
an information and measurement system that identifies, records, and communicates an organization’s business activities
internal controls
policies and procedures that prevent fraud by protecting assets, ensuring reliable accounting records, and promoting efficiency
Securities and Exchange Commission (SEC)
government agency that has the legal power to set and enforce accounting practices for companies whose securities are offered for sale to the general public
Generally Accepted Accounting Principles (GAAP)
financial accounting concepts and rules to provide relevant, comparable, and reliable information
Measurement Principle (cost principle)
transaction value is the exchange value
revenue recognition principle
recognize revenue when goods or services are provided to customers and an amount is expected to be received from the customer
expense recognition principle (matching principle)
expense is reported when it happens/when item is used
full disclosure
report details behind financial statements that would impact a customers decisions (pertinent and relevant information)
going concern assumption
business is presumed to keep operating
monetary unit assumption
transactions and events are recorded in money
time period assumption
life of a company can be divided into time periods (ex. week, month, year)
business entity assumption
business is accounted for separately than the owner’s accounts
sole proprietorship
a business owned by one person that is a separate accounting entity but not a separate legal entity from its owner
partnership
a business owned by two or more people who are jointly liable for tax and other obligations and are not legally separate from its owners
corporation
a business legally separate from its owners or owners meaning it is responsible for its own taxes and debts. It has the rights of a person
cost benefit
Only information with benefits of disclosure greater than their cost need to be disclosed
assets
economic resources that are expected to benefit the companies future operations
liabilities
business’s present debt (ex. loans, owed wages, taxes owed)
equity
parts of the business clearly owned by the owner that contributes to their net assets
owner investments
assets from owner put into the business
owner withdrawals
assets that owner takes out of the business
revenue (sales)
increases owner’s equity from business
expenses
decreases in owner’s equity from the business
accounting equation
assets= liabilities + owner’s equity