Financial Accounting Vocabulary

Flashcards covering key vocabulary and concepts from a financial accounting lecture, including GAAP, financial statements, and ethical considerations.

Financial Accounting

Provides useful financial information to users external to the business, prepared according to GAAP, enabling efficient capital market operations.

Managerial Accounting

Provides useful managerial information to internal users, tailored to meet managers' specific information needs.

Cash Basis Accounting

Accounting method where key measure is net operating cash flow (cash receipts minus cash disbursements).

Accrual Accounting

Accounting method where key measure is net income (revenues minus expenses), providing a better reflection of economic performance.

Generally Accepted Accounting Principles (GAAP)

Dynamic set of broad and specific guidelines companies should follow when measuring and reporting information in their financial statements.

Securities and Exchange Commission (SEC)

U.S. governmental agency with the authority to set accounting and reporting standards for publicly traded companies.

Financial Accounting Standards Board (FASB)

The current private sector body that sets accounting standards in the U.S.

Accounting Standards Updates (ASUs)

New guidance issued by the FASB to amend the Accounting Standards Codification.

Codification

Searchable online database that integrates and topically organizes all relevant accounting pronouncements, creating a comprehensive set of accounting rules (GAAP).

Governmental Accounting Standards Board (GASB)

Develops accounting standards for governmental units (e.g., states and cities).

International Accounting Standards Board (IASB)

Develops a single set of high-quality, understandable, and enforceable global accounting standards (IFRS).

Private Company Council (PCC)

Identifies practical expedients for private companies and proposes modifications to accounting standards.

Ethics

The ability to distinguish right from wrong; a code or moral system that provides criteria for evaluating right and wrong.

Conceptual Framework

Provides the underlying foundation for the development of accounting rules (GAAP) by the FASB.

Relevance

A primary qualitative characteristic of financial information; includes predictive value and confirmatory value.

Faithful Representation

A primary qualitative characteristic of financial information; includes completeness, neutrality, and freedom from material error.

Comparability

An enhancing qualitative characteristic of financial information, implying results for different periods were developed using the same policies.

Verifiability

An enhancing qualitative characteristic of financial information, implying independent measurers would come to a similar conclusion.

Timeliness

An enhancing qualitative characteristic of financial information, implying the information is available early enough for users' decisions.

Understandability

An enhancing qualitative characteristic of financial information; users are able to comprehend the information.

Assets

Something of value the company has; probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.

Liabilities

Something we owe to another entity; probable future sacrifices of economic benefits arising from present obligations.

Equity

Net assets; stockholders’ equity; residual interest in the assets of an entity that remains after deducting all liabilities.

Revenues

Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.

Expenses

Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.

Gains

Increases in equity from peripheral or incidental transactions of an entity.

Losses

Decreases in equity arising from peripheral or incidental transactions of an entity.

Recognition

The process of admitting information into the financial statements.

Measurement

The process of associating numerical amounts with the elements of financial statements.

Historical Cost

Measurement model used for PP&E and intangible assets.

Net Realizable Value

Measurement model used for inventory.

Fair Value

Measurement model often used for investments.