Accounting Midterm 1

Front 1

Accounting’s 3 basic activities

Back 1

identify, record, communicate

Front 2

reported in aggregate

Back 2

accumulate all sales transactions over a period of time and report the data as one amount in the financial statement

Front 3

bookkeeping

Back 3

recording of economic events

Front 4

Finance (internal user)

Back 4

is cash sufficient to pay dividends to stockholders?

Front 5

marking (internal user)

Back 5

what price for a product will maximize the company’s net income?

Front 6

human resources (internal user)

Back 6

can we afford to give employees a raise this year?

Front 7

management (internal user)

Back 7

which product line is most profitable? Should any be eliminated?

Front 8

managerial accounting

Back 8

provides internal reports to help users make decisions about their companies

Front 9

investors (external user)

Back 9

did the company earn a satisfactory income? Uses accounting info to decide to buy, hold, or ownership shares of the company

Front 10

creditor (external user)

Back 10

will the company be able to pay its debt when its due? Using info to evaluate risks of granting credit or lending money

Front 11

financial accounting

Back 11

provides economic and financial information for external users

Front 12

Taxing Authorities

Back 12

agencies that want to know if companies are complying with tax laws . such as Internal Revenue Service

Front 13

Regulatory agencies

Back 13

such as the Securities and Exchange Commission or the Federal Trade Commission, want to know whether the company is operating within prescribed rules

Front 14

Customers (external user)

Back 14

whether company will honor warranties and support product lines

Front 15

labor unions (external user)

Back 15

whether company can increase wages and benefits

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Sarbanes-Oxley Act (SOX or Sarbox)

Back 16

top management must certify accuracy of financial information. Penalties for fraud is more severe. Increases independence of auditors and oversight role of Board of Directors

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Financial Accounting Standards Board (FASB)

Back 17

primary accounting standard-setting body in the US

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International Accounting Standards Board (IASB)

Back 18

accounting standard setting body that issues standards adopted by many countries outside the US

Front 19

International Financial Reporting Standards

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International accounting standards set by the International Accounting Standards Board

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Convergence

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effort to reduce differences between US GAAP and International Financial Reporting Standards

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Generally Accepted Accounting Principles (GAAP)

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standard guideline of accounting

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Revelevance

Back 22

information that is capable of making a difference in a decision; should have predictive and confirmatory value

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faithful representation

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quality of information is assured that it’s free of error and bias

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Cost Principle

Back 24

An accounting principle that states that companies should record assets at their cost.

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Fair Value Principle

Back 25

accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability).

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Economic Entity Assumption

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An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

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proprietorship

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business owned by one person

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partnership

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a business owned by two or more persons

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corporation

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A business organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock.

Front 30

Time Period Assumption

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An assumption that accountants can divide the economic life of a business into artificial time periods.

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Interim Periods

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Monthly or quarterly accounting time periods

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fiscal year

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accounting period that is one year in length

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calender year

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accounting period that starts Jan 1 and ends Dec 31

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Revenue Recognition principle

Back 34

The principle that companies recognize revenue in the accounting period in which the service is performed; follows GAAP

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Expense recognition principle

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The principle that companies match efforts (expenses) with accomplishments (revenues). Expenses should be recorded in time period that service revenue is made/when service is performed. This however may make the expense not in the same period of when expense is paid; follows GAAP

Front 36

In balance sheet, for stockholder's equity there is

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Common stock and Retained Earnings

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Temporary Accounts

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all revenue and expense accounts, dividends

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permanent accounts

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all asset and liability accounts, stockholder's equity

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long term liabilities

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mortage payable, notes payable, bonds payable

Front 40

consistency

Back 40

same accounting principles and methods used year to year within company

Front 41

full disclosure

Back 41

companies should disclose all circumstances and events that make a difference to financial statement users

Front 42

going concern assumption

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company will not liquidate in near future