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26 Cards in this Set
- Front
- Back
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fiscal year
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An accounting period that is one year in length. Can start at any time but must end in one year.
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calendar year
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An accounting period that is one year in length. Begins on January 1st and ends on December 31st.
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Accrual-Basis Accounting
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A form of accounting in which companies record transactions that change a company's financial statements in the periods in which the event occurs.
Is in accordance with GAAP |
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Cash-Basis Accounting
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A type of accounting in which companies record revenues when they receive cash and record and expense when they pay out cash.
Is not in accordance with GAAP |
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GAAP
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(Generally Accepted Accounting Principles)
A set of standards to indicate how to report economic events. |
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FASB
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(Financial Accounting Standards Board)
The primary accounting standard-setting body in the United States. They create GAAP. Financial statements of public companies must be prepared according to GAAP. |
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SEC
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(Securities and Exchange Commission)
- Agency of the U.S Government that oversees U.S financial markets and accounting standard-setting bodies. - Created in 1929 as a result of the stock market crash and is a government organization that regulates stock exchange. |
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IASB
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(International Accounting Standards Board)
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IFRS
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(International Financial Reporting Standards)
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Economic Entity Concept
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Keep personal accounting records separate from your business records.
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Historical Costs
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Assets recorded at the price paid and NOT adjusted for changes in value.
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Accounting & the 3 activities it does
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1. Identify - must be relevant to the business
2. Record - records must be systematic and in chronological order 3. Communicate - Present data in an understandable format |
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Economic event
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Any business transaction that has an effect on the accounting equation
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Bookkeeping Vs. Accounting
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Bookkeeping - Only involves the recording of economic events.
Accounting - the process of identifying, recording, and communicating economic events. |
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Who uses Accounting data?
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1. Internal User - Someone who works inside the company. (Ex. Managers, Owners)
2. Managerial Accountants - Provides internal reports to help users make decisions about their companies. (Ex. financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash for the next year.) 3. External Users - People outside the company. (Ex. Investors, Customers, Suppliers, Bankers, Creditors, gov. agencies) |
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3 types of businesses and advantages
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1. Proprietorship - 1 owner business. It's a legal extension of the owner. Net income taxed through individual tax return.
2. Partnership - 2 or more business owners. Net income is taxed through the individual tax return. 3. Corporation - Separate legal entity. Organized under the laws of a particular state. They are taxed separately and obligations of the business do not flow to the owners. _____________________________________________________ The advantages of being incorporated: 1. Limited liability protects the owners. 2. The ease of raising capital by selling stock. 3. Ownership is easily transferred. |
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What are the 3 primary statements?
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1. Balance Sheet - Reports what you own vs. what you owe.
2. Income Statement - Reports the performance of the business. 3. Statement of Cash Flows - Shows where cash comes from and where it goes out. |
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Balance Sheet
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Presents financial position at a point in time. It is the accounting equation.
Assets = Liability + Owner's Equity |
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Assets & Liquidity
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Assets - Probable future economic benefits. (Ex. Truck, Computer, Office)
Liquidity - The ease at which assets can be converted to cash. |
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Liabilities
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Debts owed. They are claims against assets.
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Owners Equity
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Portion of assets actually owned by the company.
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Monetary Unit Assumption
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Requires that companies include in the accounting records only transaction data that can be expressed in money terms.
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2 sources of Equity
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1. Contribute capital - Selling stock.
2. Retained Earnings - Profits kept by the business. |
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Income Statements
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Describe performance for a period of time.
Basic structure: Revenues - Expenses = Net Income |
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Revenue
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Assets created through the performance of a business.
Ex. Cash, Accounts Receivable |
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Expenses
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Assets consumed
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