Financial accounting Chapters 1-4

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Terms in this set (...)

owners equity
owners claim on assets of an entity
stockholders equity
owners equity in a corporation
retained earnings
part of the stockholders equity that represents income earned less paid over the life of the entity
income statement
sum of revenue and expenses (rev + expenses)
net income
excess of revenue over expenses (Rev/expenses)
assets
cash, accounts receivable, land owned by company, building.
liability
accounts payable, notes payable.
stockholder
capital stock, retained earnings
balance sheet
shows what obligations will be due in the future, and the assets needed.
the income statement
shows the revenues and expenses for a time period
statement of cashflows
show where cash came from and how it was used during the period
notes
provide important details about the company's accounting policy and other key factors, that affected it's financial condition and performance.
understandablity
a quality of accounting information that makes it comprehensible to those willing to spend the time.
comparability
allows comparisons to be made between and among companies
depreciation
the process of allocating the cost of long - term tangible assets over it's useful life
consistency
allows the user to compare two or more accounting periods for a single company
materiality
the magnitude of accounting information omission or misstatement that will affect the judgement of someone relying on the information
conservatism
the practice of using the least optimistic estimate when two estimates of accounts are about equally likely
operating cycle
time period between purchase of inventory and the collection of any recievable from the sale of inventory
current assets
realized in cash or sold or consumed during the operating cycle or within one year of the cycle is shorter
non-current
property, plant equipment, intangibles
current liabilities
obligations that will be resolved in a year
liquidity
the ability of a company to pay it's debts as they come due
working capital
current assets minus current liabilities (current assets - current liabilities)
current ratio
Current assets divided my current liability
profit margin
net income divided by sales (sales, sales revenue, operating revenue, revenue)
source document
evidence that something has happened
Cast principle
record of transaction at the cost bases ( not carried at market value but original cost value)
T-Account
format for showing amounts coming into and leaving an account.
Accrued revenues
like accounts receivable, appears on the balance sheet. (when a company has recorded revenue but will only receive cash at a later date)
accrued expenses
accrued salaries, wages, and related benefits reported under the current liabilities.
deferred revenues
Examples: gift cards, includes in other current liabilities the amount of gift cards that have not yet been redeemed. (receive cash prior to making a sale)
prepaid expanses
represents the amounts the retailer has paid in advance for items, such as supplies. The company will record expenses as supplies are used. (pay cash prior to actually incurring an expense.)
recognition
the process of recording or incorporating an item into the financial statements of an entity a asset, a liability, a revenue, an expense or the like.
Cash basis
a system of accounting in which revenues are recognized when cash is received and expenses are recognized when the cash is paid.
Accrual basis
a system in which revenues are recognized when performed obligation is satisfied and expenses are recognized when incurred.
Revenues
inflows of assets or settlements of liabilities from delivering or producing goods, rendering services, or conducting other activities.
revenue recognition principle
revenues are recognized when a performance obligations is satisfied
Matching principle
the association of revenue of a period with all of the costs necessary to generate that revenue.

Example: cost of goods expense with sales revenue. The cost of goods sold is the cost of inventory associated with a particular sale
closing process
revenues and expenses get dumped into retained earnings. ( nominal account.)