Financial Statements And Accounting Transactions

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accounting equation/balance sheet equation

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a description of the relationship between a company's assets, liabilities, and equity; expressed as Assets=Liabilities + Owner's Equity

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accounts payable

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a liability created by buying goods or services on credit

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accounts receivable

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an asset created by selling products or services on credit

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AcSB

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Accounting Standards Board; the authoritative committee the identifies generally accepted accounting standards

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ASB

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Auditing Standards Board; the authoritative committee that identifies generally accepted auditing standards

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assets

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properties or economic resources owned by the business; more precisely, rexources with an ability to provide future benefits to the business

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balance sheet

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a financial statement that reports the financial position of a business at a point in time; lists the types and dollar amounts of assets, liablilities, and equity as of a specific date; also called the statement of financial position

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business activities

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all of the transactions and events experienced by a business

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business entity principle

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the principle that require every business to be accounted for separtely from its owner or owners; based on the goal of providing relevant information about each business to users

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business events

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activities that do not involve an exchange of economic consideration between two parties and therefore do not affect the accounting equation

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busniess transaction

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an exchange of economic consieration between two parties that causes a change in assets, liabilities, or owner's equity; ex. products, services, money, and rights to collect money

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calendar year

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an accountin gyear that begins on January 1 and ends on December 31

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cash flow statement

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a financial statement that describes the sources and uses of cash for a reporting period; where a company's cash came from (reciepts) and where it went during the period (payments); the cash flows are arranged by an organization's major activities; operating, investing, and financing activities

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CICA Handbook

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the publication of the Canadian Institute for Chartere Accountants (CICA) that details generally accepted accounting priciples

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comparability

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similarity; ability to be compared with other information

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consistency

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conformity with other or earlier information; using the same accounting procedures from one accounting period to the next

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cost principle

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the accounting priciple that require financial statement information to be based on actual costs incurred in business transactions; it requires assets and services to be recorded initially at the cash or cash equivalent amount given in exchange

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crreditors

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individuals or organizations entitled to receive payments from a company

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debtors

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individuals or organization that owe amounts to a business

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economic consideration

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something of value; products, services, money, and rights to collect money

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equity/net assets

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the owner's claim on the assets of a business; more precisely, the assets of an entity that remain after deducting its liabilities

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expenses

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costs incurred or the using up of assets as a result of the major or central operations of a business

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financial statements

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the most importnt products of accounting; include the income statement, the statement of owner's equity, the balance sheet, and the cash flow statement

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fiscal year

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a one-year reporting period

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Generally Accepted Accounting Priciples (GAAP)

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the rules adopted by the accounting profession that make up accetable accounting practices for the preparation of financial statements

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going concern principle

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the rule that requires financial statements to reflect the assumption that the business wil continue operating instead of being closed or sold, unless evidence shows that it will not continue

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IASC: International Accounting Standards Committee

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a committee that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance

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income statement

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the financial statement that shows, by subtracting expenses from revenues, whether the business earned a profit; it lists the types and amounts of revenues earned and expenses incurred by a business over a period of time

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liabilities

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the debts or obligations of a business; claims by others that will reduce the future assets of a business or require future services or products

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monetary unit principle

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the expression of transactions and events in money units

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natural business year

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a 12-month period that ends when a company's slaes activities are at their lowest point

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net income

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the excess of revenues over expenses for a period

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net loss

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the excess of expenses over revenues for a period

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note payable

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a liabilty expressed by a written promise to make a future payment at a specific time

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objectivity principle

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the accounting guideline that requires financial statement information to be supported by independent, unbiased evidence rather that someone's opinion; objectivity adds to the reliability, verifiability, and usefulness of accounting information

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owner investments

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the transfer of an owner's personal assets to the business

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owner's equity

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total assets minus total liabilities; represents how much of the assets belong to the owner; increases with owner investments and net income and decreases with owner withdrawals and net loss

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owner withdrawals

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the distribution of cash or other assets from a properietorship or partnership to its owner or owners

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profit

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another name for net income

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relevance

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information must make a difference in the decision-making rocess

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reliability

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the extent to which information is verifiable and neutral; implies a consensus among different measures

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revenue recognition principle

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provides guidance on when revenue should be reflected on the income statement; the rule states that revenue is recorded at the time it is earned regardless of whether cash or another asset has been exchanged

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revenues

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the value of assets exchanged for goods or services provided to customers as part of a business's main operations; may occur as inflows of assets or decreases in liabilities

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source documents

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documents that identify and describe transactions entering the accounting process; the source of accounting information, whether in paper or electronic form

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statement of owner's equity

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a financial statement that reports the changes in equity over the reporting period; beginning equity is adjusted for increases such as owner investments or net income and decreases such a owner withdrawals or a net loss

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6 GAAP principles

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business entity principle
cost principle
objectivity principle
going concern principle
monetary unit principle
revenue recognition principle