Hospitality Financial Accounting Chapter 2

Generally Accepted Accounting Principles
set of standards and rules that are recognized as a general guideline for financial reporting purposes.
Conceptual Framework
Serve as a basis for resolving accounting and reporting problems which include Qualitative charateristics of accounting information, elements of financial statements and operating guidelines.
Objectives of Financial reporting
Making investment and credit decisions, assessing future cash flows and identifying the economic resources (assets) and claims to those resources (liabilities)
Four qualitative characteristics of accounting
Relevance, reliability, comparability and consistency
Elements of Financial statements
set of definitions of the basic terms used in accounting
Operating guidelines
used by accountants to solve practical problems
Monetary unit assumption
the only data recorded is expressed in cash
Economic entity assumption
states that the finical records of business owner are to be kept separate
Time period assumption
states that the economic life of a business can be divided into artificial time periods
Going concern assumption
states that the enterprise will continue in operation long enough to carry out its existing objectives
Revenue recognition principle
dictates that revenue should be recognized in the accounting period in which it is earned
Matching Principle
requires that expenses be matched with revenues in the period in which effort are expended to generate revenue
Full Disclosure principle
Requires that circumstances and events that make a difference to financial statement users be disclosed.
Cost principle
assets should be recorded at their cost
an item is likely to influence the decision of a reasonably prudent investor
when in doubt choose the method that will be least likely to overstate assets and income.
Income statement
presents the revenues and expenses and resulting net income or net loss for a specific period of time
Balance Sheet
reports assets, liabilities and stockholders equity at a specific date
Statement of cash flow
summarizes information concerning the cash inflows and outflows for a specific period of time
Accounts Payable
YOUR DEBT liability
Accounts receivable
customer's debt ASSET
decrease stockholder's equity
Retained Earnings
Affected by revenue, dividends and expenses