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53 terms

Chapter 01 Fundamental Accounting Principles

Fundamental Accounting Principles ninth edition chapter 01 terms
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Accounting
is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.
Recordkeeping
is the recording of transactions and events, either manually or electronically. Also called bookkeeping.
Bookkeeping
is the recording of transactions and events, either manually or electronically. Also called recordkeeping.
External users
Person using accounting information who are not directly involved in running the organization.
Financial accounting
area of accounting aimed at serving external users by providing them with general-purpose financial statements.
Internal Users
Persons using accounting information who are directly involved in managing the organization.
Managerial Accounting
area of accounting that serves the decision-making needs of internal users; also called management accounting.
Ethics
Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest.
Financial Accounting Standards Boards (FASB)
Independent group of full time members responsible for setting accounting rules.
Securities and Exchange Commissions (SEC)
Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public.
InternationalL Accounting Standards Board (IASB)
Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS).
Cost Principle
Accounting principle that prescribes financial statements information to be based on actual costs incurred in business transactions.
Revenue Recognition Principle
The principle prescribing that revenue is recognized when earned.
Assets
Resources a business owns or controls that are expected to provide current and future benefits to the business.
Auditors
Individuals hired to review financial reports and information systems.

Internal auditors of a company are employed to assess and evaluate its system of internal controls, including the resulting reports.

External auditors are in dependent of a company and are hired to assess and evaluate the "fairness" of financial statements (or to perform other contracted financial services).
Business Entity Assumption
Principle that requires a business to be accounted for separately from its owner(s) and from any other entity.
Common Stock
Corporation's basic ownership share; also generically called capital stock.
Corporation
Business that is separate legal entity under state or federal laws with owners called shareholders or stockholders.
Full Disclosure Principle
Principle that prescribes financial statements (including notes) to report all relevant information about an entity's operations and financial condition.
Matching Principle
Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
Sarbanes-Oxley Act (SOX)
Created the Public Company Accounting Overt Board, regulates analyst conflicts, imposes corporate governance requirements, enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct,and expands penalties for violations of federal securities laws.
Shareholders
Owners of a corporation; also called stockholders.
Stockholders
Owners of a corporation; also called Shareholders.
Shares
Equity of a corporation divided into ownership units; also called stocks.
Stocks
Equity of a corporation divided into ownership units; also called shares.
Sole Proprietorship
Business owned by one person that is not organized as a corporation; also called proprietorship.
Partnership
Unincorporated association of two or more persons to pursue a business for profit as co-owners.
Balance Sheet
Financial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date.
Equity
Owner's claim on the assets of a business; equals the residual interest in an entity's assets after deducting liabilities; also called net assets.
Events
Happenings that both affect an organization's financial position and can be reliably measured.
Expanded Accounting Equation
Assets = Liabilities + Equity; Equity equals [Owner capital - Owner withdrawals + Revenues - Expenses] for a noncorporation; Equity equals [Contributed Capital + Retained earnings + Revenues - Expenses] for a corporation where dividends are Subtracted from retained earnings.
ExpensesOutflows or using u[
Outflows or using up of assets as part of operations of a business to generate sales.
External Transactions
Exchanges of economic value between one entity and another entity.
General Accepted Accounting Principle (GAAP)
Rules that specify acceptable accounting practices.
Going-Concern Assumption
Principle that prescribes financial statements to reflect the assumption that the business will continue operating.
Income Statement
Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses.
Internal Transactions
Activities within an organization that can affect the accounting equation.
Liabilities
Creditors' claims on an organization's assets; involve a probable future payment of assets. products. or services that a company is obligated to make due to past transactions or events.
Monetary Unit Assumption
Principle that assumes transactions and events can be expressed in money units.
Net Income
Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings.
Net Loss
Excess of expenses over revenues for a period.
Owner, Capital
Account showing the owner's claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company's inception; also referred to as equity.
Owner Investment
Assets put into the business by the owner.
Owner Withdrawals
Account used to record asset distribution to the owner. (see also withdrawals.)
Proprietorship
(see Sole proprietorship)
Return
Monies received from an investment; often in percent form.
Return on Assets
(See Return On Total Assets.)
Revenues
Gross increase in equity from a company's business activities that earn income; also called sales.
Risk
Uncertainty about an expected return.
Statement of Cash Flows
A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, and financing.
Statement of Owner's Equity
Report of changes in equity over a period; adjusted for increases (owner investment and net income) and for decreases (withdrawals and net loss).
Time Period Assumption
Assumption that an organization's activities can be divided into specific time periods such as months. quarters, or years.
Withdrawals
Payments of cash or other assets from a proprietorship or partnership to its owner or owners.