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43 Cards in this Set

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Accounting
a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers.
Balance Sheet
(Statement of Financial Position) reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time.
Accounting Entity
the organization for which financial data are to be collected
Basic Accounting Equation
(balance sheet equation)
Assets = Liabilities + Stockholders' Equity
Income Statement
(Statement of Earnings/Operations)
reports the revenues less the expenses of the accounting period to get the Net Income.
Accounting Period
the time period covered by the financial statements
Statement of Retained Earnings
reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period
Statement of Cash Flows
(Cash flow statement)
reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing
Notes
(footnotes) provide supplemental information about the financial condition of a company without which the financial statements cannot be fully understood
Generally Accepted Accounting Principles
(GAAP) are the measurement rules used to develop the information in financial statements
Securities and Exchange Commission
(SEC) is 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.
Financial Accounting Standards Board
(FASB) is the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles.
Audit
an examination of the financial reports to ensure that they represent what they claim and conform with GAAP
Primary Objective of External Financial Reporting
to provide useful economic information about a business to help external parties make sound financial decisions.
Separate-Entity Assumption
(An acctg assumption) states that business transactions are accounted for separately from the transactions of owners
Unit-of-Measure Assumption
(An acctg assumption) states that accounting information should be measured and reported in the national monetary unit
Continuity Assumption
(or going-concern assumption) states that businesses are assumed to continue to operate into the foreseeable future
Assets
economic resources with probable future benefits owned by the entity as a result of past transactions
Historical Cost Principle
requires assets to be recored 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.
Current Assets
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.
Liabilities
probably debts or obligations of the entity that result from past transactions, which will be paid with assets or services
Current Liabilities
obligations that will be settled by providing cash, goods, or services within the coming year
Stockholders' Equity (owners' equity)
the financing provided by the owners and business operations
Contributed Capital
results from owners providing cash (and sometimes other assets) to the business.
Retained Earnings
the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business
Transaction
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
2) a measurable internal event such as the use of assets in operations
Account
a standardized format that organizations use to accumulate the dollar effect of transactions on each financial statement item.
Transaction Analysis
the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation. A = L + SE
Debit
(dr) is always on the left side of an account
Credit
(cr) is on the right side of an account
Journal Entry
an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format
T-Account
a tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities
Financial Leverage Ratio
FLR = Average Total Assets/Average Stockholders' Equity

"Average" is (Beg. Balance + Ending Bal) / 2
Operating (Cash to Cash) Cycle
the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers.
Time Period Assumption
indicates that the long life of a company can be reported in shorter time periods
Revenues
are increases in assets or settlements of liabilities from ongoing operations
Gains
increases in assets or decreases in liabilities from peripheral transactions
Losses
are decreases in assets or increases in liabilities from peripheral transactions
Expenses
decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period
Cash Basis Accounting
records revenues when cash is received and expenses when cash is paid
Accrual Basis Accounting
records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments
Revenue Principle
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
4) collection is reasonably assured
Matching Principle
requires that expenses be recorded when incurred in earning revenue