Accounting Terms From Chapter 1 And 2 Of Financial Accounting 4E

Front 1

What are the 3 steps of Accounting?

Back 1

Indentify, Record, and Communicate

Front 2

Who are the origins of accounting attributed to?

Back 2

Luca Pacioli (an Italian Renaissance Mathematician)

Front 3

Accounting v Bookkeeping

Back 3

The accounting process includes the bookkeeping function, but bookkeeping usually only involves the recording of economic events.

Front 4

Ethics

Back 4

the standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair

Front 5

GAAP

Back 5

Generally Accepted Accounting Principles are common standards that indicate how to report economic events

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FASB

Back 6

The Financial Accounting Standards Board is a private organization that establishes generally accepted accounting principles (GAAP)

Front 7

SEC

Back 7

Security and Exchange Commission is a governmental agency that requires companies to file financial reports in accordance with generally accepted accounting principles.

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Cost Principle

Back 8

An accounting principle that states that assets should be recorded at their cost.

Front 9

Monetary Assumption

Back 9

An assumption stating that only transaction data that can be expressed in terms of money be included in the accounting records - the unit of measure remains sufficiently constant over time

Front 10

Economic Entity Assumption

Back 10

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

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Proprietorship

Back 11

A business owned by one person, therefore personally liable

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Partnership

Back 12

An association of two or more persons to carry on as co-owners of a business for profit; must separate own lives from business

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Corporation

Back 13

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

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Assets

Back 14

Resources owned by a business

Consists of:
Cash, Accounts Receivable, Supplies, Insurance, and Equipment

Normal Balance is Debit

Front 15

Liabilities

Back 15

Creditorship claims on assets

Consists of:
Notes Payable, Accounts Payable, Unearned Revenue

Normal Balance is Credit

Front 16

Stockholders' Equity

Back 16

The ownership claim on total assets of a corporation

Consists of accounts:
Common Stock, Retained Earnings, and Dividends

Normal balance is Credit

Front 17

Retained Earnings

Back 17

are determined by revenues, expenses, and dividends

Front 18

Revenues

Back 18

The gross increase in stockholders' equity resulting from business activities entered into for the purpose of earning income

Normal Balance is credit

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Expenses

Back 19

The cost of assets consumed or services used in the process of earning revenue

Ex: advertising, insurance, salaries, and rent

Normal balance is Debit

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Net Income

Back 20

the amount by which revenues exceed expenses

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Net loss

Back 21

the amount by which expenses exceed revenues

Front 22

Dividend

Back 22

a distribution by a corporation to its stockholders on an equal (pro rata) basis

Normal Balance is Debit

Front 23

Transactions

Back 23

the economic events of the enterprise that are recorded by accountants

Front 24

Income Statement

Back 24

A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time

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Retained Earnings Statement

Back 25

A financial statement that summarizes the changes in retained earnings for a specific period of time

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Balance Sheet

Back 26

A financial statement that reports the assets, liabilities, and stockholders' equity at a specific date

Front 27

Statement of Cash Flows

Back 27

A financial statement that provides imformation about he cash inflows (receipts) and cash outflows (payments) of an entity for a specific period of time

Front 28

Auditing

Back 28

the examination of financial statements by a certified public accountant in order to express an opinion as to the fairness of presentation

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Management Consulting

Back 29

An area of public accounting involving financial planning and control and the development of accounting and computer systems

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Examples of Public Accounting include:

Back 30

auditing, taxation, and management consulting

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Examples of Private Accounting include:

Back 31

General accounting, cost accounting, budgeting, accounting information systems, tax accounting, internal auditing

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Account

Back 32

a record of increases and decreases in specific asset, liability, or stockholders' equity items

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Debit

Back 33

the left side

Front 34

Credit

Back 34

the right side

Front 35

3 Steps in the Recording Process:

Back 35

1. analyze each transaction for its effects on the accounts
2. enter the transaction info in a journal
3. transfer the journal info to the appropriate accounts in the ledger

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Journal

Back 36

An accounting record in which transactions are initially recorded in chronological order

Front 37

Journalizing

Back 37

the entering of transaction data in the journal

Front 38

Ledger

Back 38

the entire group of accounts maintained by a company
- it keeps in one place all the information about changes in specific account balances

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General Ledger

Back 39

a ledger that contains all asset, liability, and stockholders' equity accounts

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Posting

Back 40

the procedure of transferring journal entries to the ledger accounts

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Chart of Accounts

Back 41

a list of accounts and the account numbers that identify their location in the ledger

Front 42

Trial Balance

Back 42

a list of accounts and their balances at a given time
- primary purpose is to prove that the debis equal the credits after posting
- uncovers errors in journalizing and posting and is useful in preparing financial statements