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94 Cards in this Set
- Front
- Back
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Accounting consists of 3 basic activites |
Identifies, records, and communicates the economic events of an organization to interested users |
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The most common accounting report |
Financial statements |
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Interpretation involves.. |
explaining the uses, meaning, and limitations of reported data |
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Bookkeeping usually involves only... |
recording of economic events |
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Internal users of accounting information are... |
Managers who plan, organize, and run the business |
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Managerial accounting |
Provides internal reports to help users make decisions about their company |
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External users are.. |
individuals and organizations outside a company who want financial information about the company |
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The 2 most common types of external users |
Investors & creditors |
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Investors (owners) use accounting information to decide... |
whether to buy, hold, or sell ownership shares of a company |
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Creditors (such as suppliers and bankers) use account information to.. |
evaluate the risks of granting credit or lending money |
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Financial accounting |
Provides economic and financial information for investors, creditors, and other external users |
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The IRS is known as a... |
Taxing Authority |
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The Securities and Exchange Commission or the Federal Trade Commission is known as a.. |
Regulatory agency |
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Regulatory agencies want to know whether.. |
The company is operating within prescribed rules |
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Taxing authorities want to know... |
whether the company complies with tax laws |
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Customers have an interest in whether.. |
a company will continue to honor product warranties and support its product line |
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Labors unions want to know whether.. |
The owners have the ability to pay increased wages and benefits |
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(SOX) |
Sarbanes-oxley Act |
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Sarbanes-Oxley Act |
Reduce unethical corporate behavior and decrease the likelihood of future corporate scandals. Penalties were increased for fraudulent financial activity |
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Ethics |
The standards of conduct by which actions are judges as right or wrong, honest or dishonest, fair or not fair |
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GAAP |
Generally Accepted Accounting Principles |
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What is GAAP standard indicate? |
How to report economic events |
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FASB |
Financial Accounting Standards Board |
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What is the primary accounting standard-setting body? |
FASB |
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What agency oversees US financial markets and accounting standard-setting bodies? |
SEC |
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SEC |
Securities and Exchange Commission |
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IASB |
International Accounting Standards Board |
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IFRS |
International Financial Reporting Standards |
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Covergence |
The effort to reduce the differences between US GAAP and IFRS |
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How many countries use IFRS? |
Over 100 |
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GAAP generally uses one of two of which measurement principles? |
The historical cost principle or the fair value principle |
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Relevance |
Financial information is capable of making a difference in a decision |
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Faithful representation |
The numbers and descriptions match what really existed or happened-they are factual |
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Selection of what measurement principle relates to.. |
trade-offs between relevance and faithful representation |
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Historical cost principle (Cost principle) |
Dictates that companies record assets at their cost |
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Under the historical cost principle, when an asset is purchased and it's value increases later, what value is represented? |
The initial cost, not the fair value |
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Fair value principle |
States that assets and liabilities should be reported at fair value |
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What is fair value? |
The price received to sell an asset or settle a liability |
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What two assumptions provide for the foundation of the accounting process? |
Monetary unit assumption & economic entity assumption |
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Monetary unit assumption |
Requires that companies include in the accounting records only transaction data that can be expressed in money terms |
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Economic entity assumption |
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 |
A business owned by one person |
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As the owner (proprietor) you.. |
receive any profits/losses, and you are personally liable for all debts of the business |
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Is there a legal distinction between the owner and the business as an economic unit in a proprietorship? |
No |
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Partnership |
A business owned by two or more people |
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Both proprietorship and partnerships are alike in the fact that.. |
They both must keep their personal transactions kept separate from the business for accounting purposes, and in both they personally liable for the business |
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Corporation |
A business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock |
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In corporations stockholders have what kind of liability? |
Limited |
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Because ownership can be transferred without dissolving the corporation, the corportation enjoys an.. |
unlimited life |
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There are ___ times more proprietorships and partnerships in the US than corporations, but the revenue produced by corporations is ___ times greater! |
5, 8 |
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What are the two basic elements of a business? |
What it owns, and what it owes |
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Assets |
The resources a business owns |
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What are the rights or claims against the asset resources? |
Liabilities and stockholders' equity |
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Claims of those who the company owes money(creditors) are called |
Liabilities |
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Whats the basic accounting equation? |
Assets = Liabilities + Stockholders' Equity |
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Why do liabilities appear before stockholders' equity in the accounting equation? |
Because they are paid first if a business is liquidated |
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The accounting equation applies to... |
All economic entities, include partnerships, etc |
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What does the basic accounting equation do? |
Provides the underlying framework for recording and summarizing economic events |
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What is a common characteristic possessed by all assets? Which turns into what? |
The capacity to provide future services or benefits, cash flow |
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What are some examples of accounts payable? |
Cheese, sausage, flour, beverages, on credit from suppliers |
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What is an example of a note payable? |
Borrowed money from a bank to purchase a delivery truck |
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Are salaries, wages, sales & real estate taxes liablities? |
Yes |
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Any money persons or entities owes money to are called.. |
Creditors |
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Creditors may legally force the liquidation of a business that does not... |
Pay its debts |
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The ownership claim on a corporation's total assets is ... |
stockholders' equity |
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Stockholders' equity = |
total assets - total liabilities |
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Stockholders' equity is also known as.. |
Residual equity |
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Why is stockholders' equity referred to as residual equity? |
It's "left over" after creditors' claims are satified |
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The stockholders' equity of a corporation's balance sheet generally consists of.. |
common stock and retained earnings |
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Common stock |
The total amount paid in by stockholders for the shares they purchase |
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How many a corporation obtain funds? |
By selling shares of stock to investors |
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Retained earnings section of the balance sheet is determined by what three items? |
Revenues, expenses, and dividends |
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Revenues |
The gross increase in stockholders' equity resulting from business activities entered into for the purpose of earning income |
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Expenses |
The cost of assets consumed or services used in the process of earning revenue |
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What are the decreases in stockholders' equity that result from operating the business? |
Expenses |
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Dividends |
The distribution of cash or other assets to stockholders |
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Net income represents an increase in net assets which are then available to distribute to.. |
stockholders |
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Dividends reduce... |
Retained earnings |
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Are dividends an expense? |
No |
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What two things increase stockholders' equity? |
Investments by stockholders' and revenues |
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What two things reduce stockholders' equity? |
Dividends to stockholders, expenses |
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Transactions (business transactions) |
Business's economic events recorded by accountants |
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Transactions may be.. |
external or internal |
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External transactions |
economic events between the company and some outside enterprise |
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Internal transactions |
Economic events that occur entirely within one company |
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Income statement |
Represents the revenues and expenses and resulting net income or net loss for a specific time period |
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Retained earnings statement |
summarizes the changes in retained earnings for a specific period of time |
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Balance sheet |
reports the assets, liabilities, and stockholders' equity of a company at a specific date |
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Statement of cash flow |
summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time |
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The heading of the statement identifies.... |
The company, type of statement, and time period covered by the statement |
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Auditing may only be performed by... |
CPAs |
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CPA |
Certified Public Accountant |
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Auditing |
Examination of financial statements to express opinion on how accurate the financial statements present the company's results and financial position |
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Forensic accounting |
Uses accounting, auditing, and investigative skills to conduct investigations into theft and fraud |
