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61 Cards in this Set
- Front
- Back
owner-managers
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the founders who invest their savings, becoming the sole owners, who also function as managers of the business
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creditor
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largest lender
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dividends
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cash payments, a portion of what the company earns, to the investors of a company
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financing activities
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when a company borrows additional money or pays back money to its lenders and recieves additional funds or pays dividends to owners
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investing activities
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when a company buys or sells items such as plant and equipment used in producing their product
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suppliers
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purchases goods from other companies
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accounting
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is a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that info to decision makers
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managerial/management accounting
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developing accounting info for internal decision makers
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financial accounting
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accounting for external decision makers
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balance sheet (statement of financial position)
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reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time
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accounting entity
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the organization for which financial data are to be collected
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basic accounting equation (balance sheet equation)
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assets = liabilities + stockholders' equity
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income statement (statement of income, statement of operations, statement of earnings)
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reports the revenues less the expenses of the accounting period
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accounting period
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the time period covered by the financial statements
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statement of retained earnings
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reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period
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statement of cash flows (cash flow statement)
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reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing
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notes (footnotes)
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provide supplemental information about the financial condition of a company without which the financial statements cannot be fully understood
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generally accepted accounting principles (GAAP)
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the measurement rules used to develop the information in financial statements
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securities and exchange commission (SEC)
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the U.S. government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements
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financial accounting standards board (FASB)
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the private sector body given the primary responsibility to work out detailed rules that become generally accepted accounting principles
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audit
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an examination of the financial reports to ensure that they represent what they claim and conform with GAAP
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public company accounting oversight board (PCAOB)
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the private sector body given the primary responsibility to issue detailed auditing standards
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primary objective of external financial reporting
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to provide useful economic information about a business to help external parties make sound financial decisions
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separate-entity assumption
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states that business transactions are accounted for separately from the transactions of owners
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unit-of-measure assumption
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states that accounting information should be measured and reported in the national monetary unit
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continuity (or going-concern) assumption
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states that businesses are assumed to continue to operate into the foreseeable future
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assets
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economic resources with probable future benefits owned by the entity as a result of past transactions
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historical cost principle (cost principle)
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requires assets to be recorded at historical cost that, on the date of the transaction, is cash paid plus the current dollar value of all noncash considerations also given in the exchange
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current assets
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assets that will be used or turned into cash within one year. Inventory is always considered a current asset regardless of the time needed to produce and sell it
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liabilities
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probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services
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current liabilities
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obligations that will be settled by providing cash, goods, or services within the coming year
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stockholders' equity (owners' equity or shareholders' equity)
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the financing provided by the owners and business operations
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contributed capital
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results from owners providing cash ( and sometimes other assets) to the business
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retained earnings
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refers to the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business
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transaction
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(1) an exchange of assets or services for assets, services, or promises to pay between a business and one or more external parties to a business or (2) a measurable internal event such as the use of assets in operations
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account
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a standardized format that organizations use to accumulate the dollar effect of transactions on each financial statement item
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transaction analysis
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the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation
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debit (dr)
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on the left side of an account
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credit (cr)
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on the right side of an account
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liabilities
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probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services
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current liabilities
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obligations that will be settled by providing cash, goods, or services within the coming year
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stockholders' equity (owners' equity or shareholders' equity)
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the financing provided by the owners and business operations
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contributed capital
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results from owners providing cash ( and sometimes other assets) to the business
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retained earnings
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refers to the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business
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transaction
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(1) an exchange of assets or services for assets, services, or promises to pay between a business and one or more external parties to a business or (2) a measurable internal event such as the use of assets in operations
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account
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a standardized format that organizations use to accumulate the dollar effect of transactions on each financial statement item
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transaction analysis
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the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation
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debit (dr)
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on the left side of an account
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credit (cr)
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on the right side of an account
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journal entry
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an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format
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t-account
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a tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities
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operating (cash-to-cash) cycle
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the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers
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time period assumption
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indicates that the long life of a company can be reported in shorter time periods
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revenues
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increases in assets or settlements of liabilities from ongoing operations
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expenses
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decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period
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gains
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increases in assets or decreases in liabilities from peripheral transactions
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losses
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decreases in assets or increases in liabilities from peripheral transactions
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cash basis accounting
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records revenues when cash is received and expenses when cash is paid
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accrual basis accounting
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records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments
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revenue principle
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states the revenues are recognized when (1) goods or services are delivered, (2) there is persuasive evidence of an arrangement for customer payment, (3) the price is fixed or determinable, and (4) collection is reasonably assured
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matching principle
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requires that expenses be recorded when incurred in earning revenue
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