Ch 1 Introducing Financial Accounting
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21 terms
Terms | Definitions |
|---|---|
 Accounting | An information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities |
| Recordkeeping (Bookkeeping) | The recording of transactions and events, either electronically or manually |
| Financial Accounting | The area of accounting aimed at serving external users by providing them with general-purpose financial statements |
| External user | Accounting information are not directly involved in running the organization |
| Internal users | Accounting information are those directly involved in managing and operating an organization. |
| Managerial accounting | The area of accounting that serves the decision-making needs of internal users, and many are managers of key operating activities. |
| Generally accepted accounting principles (GAAP) | Financial accounting is governed by concepts and rules |
| Securities and Exchange Commission (SEC) | A government agency that has the legal authority to set the GAAP |
| Financial Accounting standards board (FASB) | A private-sector group that sets both broad and specific principles |
| International Accounting Standard Board (IASB) | An independent group that issue the International Financial Reporting Standards (IFRS) that identify preferred accounting principles |
| Measurement principle (cost principle) | That accounting information is based on actual cost (with potential for subsequent adjustments to market) |
| Revenue recognition principle | Provides the guidance of when a company must recognize revenue. |
| Expense recognition principle (matching principle) | Prescribes that a company record the expenses it incurred to generate the revenue reported |
| Full disclosure principle | Prescribes that a company report the details behind financial statements that would impact users' decisions |
| Going-concern assumption | Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold |
| Monetary unit assumption | Means that we can express transactions and events in monetary, or money, units |
| Time period assumption | Presumes that the life of a company can be divided into time periods, such as month and years, and that useful reports can be prepared for those periods. |
| Business entity assumption | Means that a business is accounted for separately from other business entities, including its owner. |
| Sole proprietorship | A business owned by one person in which that person and the company are viewed as one entity for tax and liability purposes. |
| Partnership | A business owned by two or more people, called partners, which are jointly liable for tax and other obligations |
| Corporation | Called a C corporation; A business legally separate from its owner or owners, meaning it is responsible for its own acts and its own debts. |
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