Using Financial Accounting Information Ch. 1
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70 terms
Terms | Definitions |
|---|---|
 business | all of the activities necessary to provide the members of an economic system with goods and services |
| business entity | an organization operated to earn profit |
| sole proprietorship | a form of organization with a single owner |
| economic entity concept | the assumption that a single identifiable unit must be accounted for in all situations |
| partnership | business owned by 2 or more individuals; the organization form used by accounting firms and law firms |
| corporation | form of entity organized under laws of a particular state; ownership evidenced by shares of stock |
| share of stock | certificate that acts as evidence of ownership in a corporation |
| bond | a certificate that represents a corporation's promise to repay a certain amount of money and interest in the future |
| nonbusiness entity | organization operated for some purpose other than to earn a profit; govt entities/private orgs: hospitals universities etc |
| liability | an obligation of a business |
| capital stock | indicates the owners contributions to a corporation |
| stockholder | one of the owners of a corporation aka shareholder |
| creditor | someone to whom a company or person has a debt aka lender |
| asset | future economic benefit |
| revenue | an inflow of assets resulting from the sale of goods and services |
| expense | an outflow of assets resulting from the sale of goods and services |
| accounting | the process of identifying measuring and communicating economic information to various users |
| management accounting | branch of accounting concerned w providing management with information to facilitate planning and control |
| financial accounting | branch of accounting concerned w the preparation of financial statements for outsider use |
| Internal Users | What kind of "users" are the management of a company? |
| external users | those not involved in the operations of a business; stockholders/bankers/govt agencies/ |
| owner's equity | the owner's claims on the assets of an entity |
| stockholder's equity | the owner's equity in a corporation; mathematical difference between a corporation's assets and its liabilities |
| retained earnings | part of stockholders equity that represents the income earned less dividends paid over the life of an entity |
| balance sheet | financial statement that summarizes the assets, liabilities, and owners' equity at a specific point in time |
| income statement | a statement that summarizes revenues and expenses |
| net income | the excess of revenues over expenses aka profits, earning |
| dividends | a distribution of the net income of a business to its owners |
| statement of retained earnings | statement that summarizes the income earned and dividends paid over the life of a business |
| statement of cash flows | Financial statement that summarizes a company's cash receipts and cash payments during the period from operating, investing, and financing activities |
| cost principle | assets are recorded at the cost to acquire them |
| going concern | the assumption that an entity is not in the process of liquidation and that it will continue indefinitely |
| monetary unit | the yardstick used to measure amounts in finacial statements; the $ in the US |
| time period | artificial segment on the calendar used as the basis for preparing financial statements |
| GAAP (Generally accepted accounting principles) | various methods, rules, practices, and other procedures that have evolved over time in response to the need to regulate the preparation of financial statements |
| SEC (securities and exchange commission) | federal agency with ultimate authority to determine the rules for preparing statements for companies whose stock is sold to the public |
| FASB (Financial Accounting Standards Board) | group in the private sector with authority to set accounting standards |
| AICPA (American Institute of Certified Public Accountants) | the professional organization of certified public accountants |
| CPA (Certified Public Accountant) | designation for an individual who has passed a uniform exam administered by the AICPA and has met other requirements as determined by individual states |
| PCAOB (Public Company Accounting Oversight Board) | A five-member body created by an act of Congress in 2002 to set auditing standards |
| IASB (International accounting standards board) | the org formed to develop worldwide accounting standards |
| auditing | the process of examining the financial statements and the underlying records of a company to render an opinion as to whether the statements are fairly presented |
| Sarbanes Oxley Act | An act congress in 2002 intended to bring reform to corporate accountability and stewardship in the wake of a number of major corporate scandals |
| Financial Activities | Borrowing; Sale of stock (example of a type of activity) |
| Investing Activities | purchase of assets (example of a type of activity) |
| Operating Activities | sale of products/services; costs incurred to operate business (example of a type of activity) |
| Basic Financial Statements | Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings (These are examples of what?) |
| Foundation for Financial Statements | 1. Aids accountants in their role as interpreters and communicators of relevant information 2. Act as a foundation for the specific principles and standards needed by the profession |
| Conceptual Framework (First level) | Objective of Financial Reporting |
| Conceptual Framework (Second level) | Qualitative Characteristics Elements |
| Conceptual Framework (third level) | Assumptions Principles Constraints |
| Elements of a 10K | 1. Letter to stockholders 2. Management discussion and analysis (MD&A) 3. Financial statements 4. Notes to financial statements 5. Statement of management's responsibility 6. Report of independent accountants (These are elements of what?) |
| Assets | Thesum of liabilities and stockholders equity equals this. |
| Balance Sheet | A "snapshot" of the investing and financing activities of the firm at any given point in time. A = L + SE |
| Assets | Probable and measurable future economic benefits controlled by an entity as a result of past transactions |
| Components of Assets | 1. Ownership or control 2. Measurability 3. Probability |
| Liabilities | Obligations to sacrifice reasonably definite amounts of cash or goods/services at reasonably certain times in the future, in exchange for past or current benefits. |
| Shareholders' equity | Residual interest of a firm's owners in the firm's assets, after deducting liabilities |
| Market value | Stock price multiplied by outstanding shares |
| Income Statement | A schedule that presents a "moving picture" of the operating results of the firm over a given time period |
| Net Income (Found on Income Statement) | Total Revenue - Total Expenses |
| Revenue | Inflows of assets from selling goods or providing services |
| Expenses | Outflows of assets as a result of generating revenues |
| Irregular Items | Discontinued operations Extraordinary items Changes in accounting principle |
| Extraordinary Items | 1. Unusual in nature 2. Infrequent in occurrence or essentially nonrecurring |
| Statement of Cash Flows | A schedule that presents a "moving picture" of the change in cash over a given time period as a result of operating, investing, and financing activities |
| Statement of Shareholders' Equity | A schedule that reconciles the change in shareholders' equity during the period (a kind of statement) |
| Statement of Comprehensive Income | Optional schedule that augments traditional net income by including other items that have changed the shareholders' claim on assets during the period |
| Statement of Retained Earnings | A schedule that connects the related changes in the Balance Sheet and the Income Statement |
| Formula for Retained Earnings | Beginning balance, add net income, deduct dividends. |
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