Accounting Chapter 2

Front 1

Primary Objective of External Financial reporting

Back 1

To provide useful economic information about a business to help external parties make sound financial decisions

Front 2

Separate entity assumption

Back 2

states that business transactions are accounted for separately from teh transactions of owners

Front 3

Unit of Measure Assumption

Back 3

states that accounting information shoudl be measured and reported in the national monetary unit

Front 4

Continuity assumption

Back 4

states that businesses are assumed to continue to operate into the foreseeable future

Front 5

Assets

Back 5

Are economic resources with probable future benefits owned by the entity as a result of past transactions

Front 6

HIstorical cost principle

Back 6

requires assets to be recorded at historical cost-cash paid plus the current dollar value of all noncash considerations given on the date of the exchange

Front 7

Current assets

Back 7

are assets that will be used or turned into cash within one year. Inventory is always considered a current asset regardless of the time needed to produce and sell it.

Front 8

Liabilities

Back 8

are probable debts are obligations of the enitty that result from past transactions, which will be paid with assets or services.

Front 9

Current Liabilities

Back 9

Are obligations that will be settled by providing cash, goods, or services within the coming year.

Front 10

Stockholders' Equity

Back 10

is the financing provided by the owners and business operations

Front 11

Contributed Capital

Back 11

Results from owners providing cash to the business

Front 12

Retained Earnings

Back 12

Refers to the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business.

Front 13

Materiality

Back 13

Exception suggests that small amounts that are not likely to influence a user's decision can be accounted for in the most cost-beneficial manner.

Front 14

Conservatism

Back 14

Exception suggests that care should be taken not to overstate assets and revenues or understate liabilities and expenses

Front 15

Transaction

Back 15

1. An exchange of assets or services for assets, services or promises to pay between a business and one or more external parties to a business or 2. a measurable internal event such as the use of assets in operations.

Front 16

Account

Back 16

Standardized format that organizations use to caccumulate the dolar efect of transactions on each financial statement item

Front 17

Transaction Analysis

Back 17

Process of studying a transaction to determine its economic effect on the business in terms of the accounting equation

Front 18

Debit

Back 18

(Dr) IS on the left side of an account.

Front 19

Credit

Back 19

(Cr) Is on the right side of an account

Front 20

Journal entry

Back 20

an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format.

Front 21

T-account

Back 21

A tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities.