Chapter-1

Front 1

Three basic activities of Accounting

Back 1

1) Identify events of economic/monetary value

2) Record the transactions

3) Communicate the events

Front 2

Bookkeeping

Back 2

Recording of economic activity

Front 3

Internal users of data

Back 3

Managers who plan, organize and run the business

eg. Marketing managers, production supervisors, finance directors and company directors.

Front 4

External Users

Back 4

Individuals and organizations outside a company who want financial information about the company

e.g Investors, creditors (suppliers and bankers), Taxing authorities, Regulatory agencies, Customers, Labor Unions

Front 5

Managerial Accounting

Back 5

The field of accounting that provides internal reports to help users make decisions about their companies

Front 6

Financial Accounting

Back 6

The field of accounting that provides economic and financial information for investors, creditors and other external users.

Front 7

Ethics

Back 7

The standard of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair.

Front 8

GAAP

Back 8

Generally accepted accounting principles

Common set of standards used by accountants to report economic events.

Front 9

IFRS

Back 9

International Financial Reporting Standards (IFRS)

International Accounting Standards set by the International Accounting Standards Board (IASB)

Front 10

Convergence

Back 10

The process of reducing the differences between US GAAP and IFRS

Front 11

Relevance

Back 11

The financial information that is capable of making a difference in a decision.

Front 12

Relevance

Back 12

The financial information that is capable of making a difference in a decision.

Front 13

Faithful representation

Back 13

The numbers and descriptions in the financial information match what really existed or happened- they are factual.

Front 14

Historical Cost Principle

Back 14

An accounting principle that dictates that companies record assets at their cost all over the time the asset is held. (i.e. cost remains same)

Front 15

Fair Value Principle

Back 15

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

Front 16

Monetary Unit Assumption

Back 16

An assumption stating that companies include in the accounting records only transaction data that can be expressed in money terms.

(The reason- it can be quantified)

Front 17

Economic entity principle

Back 17

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.

Front 18

Proprietorship

Back 18

A business owned by one person

Front 19

Partnership

Back 19

A business owned by two or more persons associated as partners.

Front 20

Corporation

Back 20

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

Front 21

Assets

Back 21

Resources a business owns

(Have the capacity to provide future services or benefits)

Front 22

Liabilites

Back 22

Creditors (person or entities to whom the business owes money) claim against assets.

Front 23

Types if liabilities

Back 23

•Accounts payable: Credit from suppliers

•Note payable: money borrowed

•Salaries and wages payable: to employees

•Sales and real estate taxes payable: to local government

Front 24

Owner's equity (residual equity)

Back 24

Ownership claim on total assets

(Assets-total liabilies)

Front 25

Investments by owner

Back 25

The assets the owner puts into a business.

Front 26

Revenues

Back 26

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

Front 27

Drawings

Back 27

Withdrawal of cash or other assets for personal use of owner(s)

Front 28

Expeneses

Back 28

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

Front 29

Basic Accounting Equation

Back 29

Assets= Liabilities + Owner's Equity

Front 30

Expanded Accounting Equation

Back 30

Assets= Liabilities + Owner's Capital- Owner's Drawings + Revenues - Expenses

Front 31

Transactions

Back 31

Business's economic events recorded by accountants.

Front 32

Income Statement

Back 32

Presents the revenues and expenses and resuulting net income or net loss for a specific period of time.

Front 33

Owner's equity statement

Back 33

Summarizes the changes in owner's equity for a specific period of time.

Front 34

Balance Sheet

Back 34

Reports the assets, liabilities and owner's equity at a specific date

Front 35

Statement of cash flow

Back 35

Summarizes information about the cash inflows(receipts) and outflows(payments) for a specific period of time.