Principals of Acct Financial CH 1-3
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78 terms
Terms | Definitions |
|---|---|
 accounting | the information system the identifies, records, and communicates the economic events of an organization to interested users |
| annual report | a report prepared by corporate management the presents financial information including financial statements, notes, a management idscussion and analysis section, and an independent auditors report. |
| assets | resources owned by a business |
| auditors report | a report prepared by an independent outside auditor stating the auditors opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting standards. |
| balance sheet | a financial statement that reports the assets and claims to those assets at a specific point in time |
| basic accounting equation | assets = liabilities + stockholders equity |
| certified public accountant | an individual who has met certain criteria and is thus allowed to perform audits of corporations |
| common stock | term used to describe the total amount paid in by stockholders for the shares they purchase |
| comparative statements | a presentation of the financial statements of a company for more than one year |
| corporation | a business organized as a seperate legal entity having ownership divided into transferable shares of stock |
| dividends | payments of cash from a corporation to its stockholders |
| expenses | the cost of assets consumed of services used in the process of generating revenues |
| income statement | a financial statement that presents the revenues and expenses and resulting net income of net loss of a company for a specific period of time |
| liabilites | the debts and obligations of a business. Liabilities represent the amounts owed to creditors |
| management discussion and anyalysis | a sectiong of the annual report that presents managements views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations |
| net income | the amount by which revenues exceed expenses |
| net loss | the amount by which expenses exceed revenues |
| notes to the financial statements | notes that clarify information presented in the financial statements, as well as expand upon it where additional detail is needed |
| partnership | a businesss owned by two or more persons associated as partners |
| retained earnings | the amount of net income retained in the corporation |
| retained earnings statement | a financial statement that summarizes the amounts and causes of changes in retained earnings for a specific period of time |
| revenue | the increase in assets that result from the sale of a product or service in the normal course of business |
| sarbanes-oxley act | regulations passed by congress in 2002 to try to reduce unethical corporate behavior |
| sole proprietorship | a business owned by one person |
| statement of cash flows | a financial statement that provides financial information about the cash reciepts and cash payments of a business for a specifc period of time |
| stockholders equity | the owners claim on total assets |
| classified balance sheet | a balance sheet that contains a number of standard classifications and sections |
| comparability | ability to compare the accounting information of different companies because they use the same accounting principals |
| conservatism | the approach of choosing an accounting method, when alternatives exist, that will least likely overstate assets and net income |
| consistency | use of the same accounting principals and methods from year to year within a company |
| cost principal | an accounting principal that states that companies should record assets at their cost. |
| current assets | cash and other resources that companies reasonably expect to convert to cash or use up within on year or the operating cycle, whichever is longer |
| current liabilities | obligations that a company reasonably expects to pay within the next year or operating cycle, whichever is longer |
| current ratio | a measure used to evaluate a company's liquidity and short-term debt paying ability; computed as current assets / current liablities |
| debt to total assets ratio | measures the % of total financing provided by creditors; computed as total debt / total assets |
| earnings per share (EPS) | a measure of the net income earned on each share of common stock; computed as (net income - preferred stock dividends) / the average nuber of common shares outstanding during the year |
| economic entity assumption | an assumtion that every economic entitiy can be seperately identified and accounted for. |
| financial accounting standards board (FASB) | the primary accoutning standard-setting body in the US |
| free cash flow | cash remaining from operating activities after adjusting for capital expenditures and dividends paid |
| full disclosure principal | accounting principal that dictates that companies disclose circumstances and events that make a difference to financial statement users |
| generally accepted accounting principals (GAAP) | a set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes. |
| going concern assumption | the assumption that the company will continue in operation for the foreseeable future |
| intangible assets | assets that do not have physical substance |
| international accounting standards board (IASB) | an accounting standard-setting body that issues standards adopted by many countries outside of the US |
| liquidity | the ability of a company to pay obligations that are expected to become due within the next year or operating cycle |
| long-term investments | generally, 1. investments in stocks and bonds of other corporations that companies hold for more than one year, and 2. long-term assets, such as land and buildings, not currently being used in the company's operations |
| long term liabilities (long term debt) | obligations that a company expects to pay after one year |
| materiality | the constraint of determining wheter and item is large enough to likely influence the decision of an investor or creditor |
| monetary unit assumption | an assumtion that requires that only those things that can be expressed in money are included in the accounting records |
| Operating cycle | The average time required to go from cash to cash in producing revenues. |
| Profitability ratios | Measures of the operating success of a company for a given period of time. |
| Property, plant, and equipment | Assets with relatively long useful lives that companies use in operating the business and are not intended for resale. |
| Public Company Accounting Oversight Board (PCAOB) | The group charged with determining auditing standards and reviewing the performance of auditing firms. |
| Ratio | An expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, a rate, or a proportion. |
| Ratio analysis | A technique for evaluating financial statements that expresses the relationship among selected financial statement data. |
| Relevance | The quality of information that indicates the information makes a difference in a decision. |
| Reliability | The quality of information that gives assurance that it is free of error, is factual, and is neutral. |
| Securities and Exchange Commission (SEC | The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies. |
| Solvency | The ability of a company to pay interest as it comes due and to repay the balance of debt at its maturity. |
| Solvency ratios | Measures of the ability of the company to survive over a long period of time. |
| Statement of stockholders' equity | A financial statement that presents the factors that caused stockholders' equity to change during the period, including those that caused retained earnings to change. |
| Time period assumption | An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business. |
| Working capital | The difference between the amounts of current assets and current liabilities. |
| Account | An individual accounting record of increases and decreases in specific asset, liability, stockholders' equity, revenue or expense items. |
| Accounting information system | The system of collecting and processing transaction data and communicating financial information to interested parties. |
| Accounting transactions | Events that require recording in the financial statements because they affect assets, liabilities, or stockholders' equity. |
| Chart of accounts | A list of a company's accounts. |
| Credit | The right side of an account. |
| Debit | The left side of an account. |
| Double-entry system | A system that records the dual effect of each transaction in appropriate accounts. |
| General journal | The most basic form of journal. |
| General ledger | A ledger that contains all asset, liability, stockholders' equity, revenue, and expense accounts. |
| Journalizing | The procedure of entering transaction data in the journal. |
| Journal | An accounting record in which transactions are initially recorded in chronological order. |
| Ledger | The group of accounts maintained by a company. |
| Posting | The procedure of transferring journal entry amounts to the ledger accounts. |
| T account | The basic form of an account. |
| Trial balance | A list of accounts and their balances at a given time. |
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