Chapter 1 Key Vocabulary - Introduction to Financial Statements

Vocabulary flashcards covering core concepts from Chapter 1: accounting, GAAP, ethics, framework, and basic principles.

Accounting

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

External users

Users outside the organization (e.g., shareholders, lenders, external auditors, regulators) who rely on accounting information.

Internal users

Managers and other members within the organization who use accounting information for planning and control.

Language of business

A nickname for accounting because it communicates data that help people make decisions.

Private accounting

Accounting services within a single organization, focusing on internal users.

Public accounting

Accounting services offered to external clients (auditing, taxation, advisory).

Artificial Intelligence in accounting

Use of software to automate repetitive tasks; accountants develop and analyze AI outputs.

Data analytics

Process of examining data to identify meaningful relations and trends; includes descriptive, diagnostic, predictive, and prescriptive analytics.

Descriptive analytics

Analytics that summarizes and describes events from the past.

Diagnostic analytics

Analytics that reveals causes of events from the past.

Predictive analytics

Analytics that forecasts likely events in the future.

Prescriptive analytics

Analytics that creates action plans to achieve a desired future.

Data visualization

Graphical presentation of data (e.g., dashboards) to help users understand trends and relations.

Ethics in accounting

Beliefs about right and wrong guiding professional conduct and trust in information.

Fraud triangle

Three conditions for fraud: opportunity, pressure, and rationalization.

GAAP

Generally Accepted Accounting Principles; rules and concepts governing financial accounting, aiming for relevance and faithful representation.

FASB

Financial Accounting Standards Board; sets GAAP with authority from the SEC.

SEC

Securities and Exchange Commission; U.S. government agency overseeing GAAP for public companies.

IASB

International Accounting Standards Board; issues IFRS and works to reduce differences with U.S. GAAP.

IFRS

International Financial Reporting Standards; global accounting standards issued by the IASB.

Conceptual Framework

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

Recognition and measurement

Criteria for recognizing items as elements and determining how to measure them.

Cost Principle (Measurement Principle)

Accounting information is based on actual cost; cost is objective.

Matching Principle (Expense Recognition)

Expenses are recorded in the period in which the related revenue is earned.

Full Disclosure Principle

Notes to the financial statements disclose details that could influence user decisions.

Revenue Recognition Principle

Revenue is recognized when goods/services are provided and the amount to be received is measurable.

Monetary Unit Assumption

Transactions are expressed in monetary units.

Business Entity Assumption

A business is accounted for separately from its owner.