Accounting - Chapter 1

Historical Cost Principle

States assets should be recorded and reported at their original purchase cost.

Management Responsibility

Primary responsibility for the information in the financial statements

Auditor Responsibility

Some responsibility for the information in the financial statements

Audit

Examination of the financial reports to ensure that they represent what they claim and conform with GAAP

Cash is an…

Asset

Short Term Investments are…

An Asset

Accounts Receivable are…

An Asset

Notes Receivable are…

An Asset

Inventory (To be Sold) is…

An Asset

Supplies are…

An Asset

Prepaid Expenses are…

An Asset

Long-Term Investments are…

An Asset

Equipment is…

An Asset

Buildings are…

An Asset

Land is…

An asset

Intangibles are…

An asset

Accounts Payable are…

A Liability

Accrued Expenses are…

A Liability

Notes Payable are…

A liability

Taxes Payable are…

A liability

Unearned Revenue is…

A liability

Bonds Payable are…

A Liability

Contributed capital is…

Stockholders Equity

Retained Earnings is…

Stockholders Equity

Basic Accounting Equation

Assets = Liabilities + Stock holders Equity

Balance Sheet shows us…

Assets, Liabilities, Stockholders Equity at a specific point in time

Income Statement shows us…

Revenues - Expenses of the accounting period

Income Statement Equation

Revenues - Expenses

Statement of Retained Earnings…

Shows the way net income and distribution of dividends affect the financial position of the company

Retained Earnings Equation

Beginning Retained Earnings + Net Income - Dividends

Statement of Cash Flows shows us…

Inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing.