C213 Accounting For Decision Makers

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Accounting Equation

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Assets EQUALS Liabilities + Owners' Equity

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Accumulated Other Comprehensive Income

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The source of these increased assets

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Assets

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Assets are the firm's economic resources, formally defined as "probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

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Balance Sheet

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A statement of financial position shows the financial resources the company owns or controls and the claims on those resources

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Book Value

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The book value of an asset is the asset's cost minus the asset's accumulated depreciation.

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Comparability

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The information that becomes much more useful when it can be related to a benchmark or standard

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Conservatism

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A pervasive factor in accounting, can be summarized as follows: When in doubt, recognize all losses but don't recognize any gains.

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Consistency

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The consistency principle states that, once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods.

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Earnings Per Share (EPS)

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EPS tells the owner of one share of stock what he or she really wants to know

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Entity Concept

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The idea that personal financial activity is kept separate from business financial activity

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Expenses

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The amount of assets consumed from the performance of business operations and thus are the opposite of revenues

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External Audit

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audit conducted by external (independent) qualified accountant(s)

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Financing Activities

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Those activities whereby cash is obtained from, or repaid to, owners and creditors

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Gains

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Refers to money made on activities outside the normal business of a company

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Going Concern Assumption

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allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments.

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Historical Cost Convention

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An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition

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Income Statement

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A company's financial performance for a specified period of time.

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Investing Activities

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The purchase and sale of land, buildings, and equipment. Investing activities also include buying and selling stocks of other companies

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Liabilities

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the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events

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Liquidity

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the ease with which the item can be turned into cash

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Losses

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Refers to money lost on activities outside the normal business of a company

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Materiality

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the question of whether an item is large enough to make any difference to anyone

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Net Assets

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total assets minus total liabilities. In a sole proprietorship the amount of net assets is reported as owner's equity. In a corporation the amount of net assets is reported as stockholders' equity.

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Net Income

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the difference between revenues and expenses. If revenues exceed expenses, net income results. If, on the other hand, expenses exceed revenues, there will be a net loss

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Net Loss

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the difference between revenues and expenses. If revenues exceed expenses, net income results. If, on the other hand, expenses exceed revenues, there will be a net loss

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Notes to Financial Statements

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These provide additional information pertaining to a company's operations and financial position and are considered to be an integral part of the financial statements.

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Operating Activities

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Those activities involved in producing and selling goods and services and thus comprise the day-to-day business of a company

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Owners' Equity

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portion of the assets that the owners of the organization can really call their own

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Paid-in Capital

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The value of the assets given in exchange for shares of stock.

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Relevance

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A qualitative characteristic in accounting. Relevance is associated with information that is timely, useful, has predictive value, and is going to make a difference to a decision maker.

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Reliability

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A qualitative characteristic in accounting. It is achieved when information is verifiable, objective (not subjective) and you can depend on it.

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Retained Earnings

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Represent the portion of stockholders' equity (resulting from cumulative profitable operations) that has not been paid to the owners as dividends

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Revenue

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The amount of assets created through the performance of business operations

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Statement of Cash Flows

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Individual cash flow items that are classified according to three main activities: operating, investing, and financing.

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Stockholders' Equity

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The portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings

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Time Period Concept

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The time period principle is the concept that a business should report the financial results of its activities over a standard time period, which is usually monthly, quarterly, or annually.

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Treasury Stock

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Shown as a subtraction in the stockholders' equity section of the balance sheet