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accounting- test 1
Terms in this set (63)
Securities and Exchange Commission, an independent federal agency that oversees the exchange of securities to protect investors
Financial Accounting Standards Board, is the private sector body given the primary responsibility to work out the detailed rules that become GAAP.
Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities.
certified public accountant, auditors
SEC requires companies to report which two things in their statements....
relevance and reliability
summarizes revenues and expenses for a specific period of time
Retained Earnings Statement
A financial statement that summarizes the changes in RE for a specific period of time
creates a "snapshot" view of current assets, liabilities, and equities
Assets = Liabilities + Owner's Equity
future payments which will be received at a later point in time
can income statements show future benefits?
no. it only summarizes revenue and expenses during a specific period in the past
resources that will be used by a business to generate future income and will provide future benefit to the company
anything the company owns
two categories of assets
items that can or will be converted into cash within one year
Items owned by the business for more than one year (property,equipment, etc)
the amount of time or effort necessary in order to transform it into an asset (cash)
a companies financial debt or obligations that arise during operation and are owed to external parties
who can liabilities be owed to?
banks, suppliers, customers, debt investors (bond holders), and company employees as unpaid wages
liability account titles are...
accounts payable, notes payable (loans), bonds, and unearned revenue
short term financial debt
long term liability (bonds and loans)
stock holders equity
represents a company's net worth
denotes a piece of company ownership purchased in the form shares
stockholders equity can be divided into 2 categories:
common stock and retained earnings
stock holders equity equation
stockholders equity= common stock+ R/E
Term used to describe the total amount paid in by stockholders for the shares they purchase.
accumulated amount of profits carried over each year after any dividends have been paid to share holders
the cash payment to reward shareholders for investing in the firm
under what conditions can dividends be distributed?
since they reduce the amount if cash on hand to reinvest to the company they are often not given until the company has achieved sustainable growth
Ending Retained Earnings Equation
beginning retained earnings + net income - dividends
recognize expenses in the same period as the revenues they help to generate
the allocation of reducing the value of a tangiable asset over its useful life
Entries made at the end of an accounting period to update revenues and expenses to reflect any changes
Revenues Recognition Principle
requires that revenues be recognized in the periods they were earned, regardless of when cash is received
the value of any cash receipts a business receives for services or products to be preformed or delivered at a future date
cash received in advanced....
is NOTT considered revenue until it is earned. Goes under liabilities in the unearned revenue accoun
what are the two classified adjustments classified into based on?
which happened first: either cash moved or work was performed
prepaid expenses and unearned revenues (pre-paid)
accrued revenues and accrued expenses (action first)
Net Income Equation
Revenues - Expenses
An increase in owner's equity resulting from the operation of a business
the costs of operating a business or creating profit
accrual basis accounting
reporting income and expenses when they are earned and incurred
cash basis accounting
records revenues and expenses when cash is exchanged regardless of when it is earned
whats the purpose of making closing entries?
to prepare the temporary accounts for the recording of the nexts periods activities
true statement of owners equity?
dividends distributed to owners decrease owners equity
statement of retained earnings show
the changes in the retained earnings account occurring during the accounting period
the major accounting differences between interest paid to creditors and dividends paid to owners is
interest paid is on the income statement and dividends paid are not
if a company fails to adjust unearned revenue for services that had been preformed, what effect will this have on the major account classifications?
understate revenues and net income, overstate liabilities, understate stockholders equity
adjusting entries do...
- assign revenues to the period in which they are earned
- help properly measure the periods net income or net loss
- bring asset and liability accounts to correct balances
examples of accruals
salaries payable, interest receivable, and taxes payable
failing to accrue interest expense at year end will result in...
understatement of liabilities, and an overstatement of net income and owners equity
when expenses exceed revenues in a given period and dividends are paid:
owners equity will be decreased
system allocation of the coast of long lived assets to expense
non cash flow item
income statement and asset statement
to accumulate over time
if a journal entry recognizes expense, the other part of the entry might
increase a liability account
ending owners equity formula
common stock + retained earnings
the relationship between income statement and the balance sheet may be described as:
the income statement explains part of the change in the owners equity between two balance sheet dates
Declaration and payment of cash dividends result in:
a decrease in retained earnings
the balance sheet item that represents the portion of stock holders equity resulting from profitable operation of the business is
revenue has been earned but not collected
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