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30 Cards in this Set

  • Front
  • Back
What is accounting
an information and measurement system that identifies, records and communicates relevant information about an organizations business activities
what is recordkeeping/bookkeeping?
recording of transactions and events
whats the difference between external and internal users?
external users are not directly involved in running the organization. Ex: investors, lenders, customers lawyers
internal users are directly involved in managing an organization
what is financial accounting?
aimed at serving external users by providing them with general-purpose financial statements
what is managerial accounting?
served the decision-making needs of internal users
what are internal controls?
procedures set up to protect company property and equipment, ensure reliable accounting reports, promote efficiency and encourage adherence to company policies
Ex:independent reviews, good records
what are the four areas of opportunities in accounting?
financial, managerial, taxation and accounting-related
what are ethics?
ethics are beliefs that distinguish right from wrong
what are generally accepted accounting principles (GAAP)?
the concepts and rules which financial accounting practice is governed by
what are the two groups which establish GAAP in the US?
the financial accounting standards board (FASB) is the private group that sets broad and specific principles while the securities and exchange comission (SEC) is the government group that establishes reporting requirements for companies that issue stock
whats the difference between general and specific principles?
general principles come from long used accounting practices and are the basic assumptions, concepts and guidelines for preparing financial statements. Specific principles arise from authoritative groups and are detailed rules used in reporting business transactions
what are the four basic principles of general accounting principles?
cost principle, revenue recognition principle, matching principle and the full disclosure principle
Describe the four basic principles
the cost principle means that accounting is based on actual cost
he revenue recognition principle provides guidance on when a company must recognize revenue and has three concepts. (1) revenue is recognized when earned, (2) proceeds from selling products need not be in cash and (3)revenue is measured by the cash received plus the cash value of other items received
the matching principle says that a company must record expenses incurred to generate revenue reported
the full disclosure principle requires a company to report details behind financial statements that would impact user's decisions
what are the four assumptions of general accounting principles?
going-concern assumption, monetary unit assumption, time period assumption and the business entity assumption
Describe the four basic assumptions
the going-concern assumption reflects a presumption that a business will continue operating
the monetary unit assumption means that transactions can be expressed in money
the time period assumption presumes that the life of a company can be divided into time periods
the business entity assumption means that a business is accounted for separately from other business entities
what are the three legal forms of business entities?
sole proprietorship, partnership and corporation
describe a sole proprietorship
a business owned by one person. It is a separate entity for accounting purposes but is not a separate legal entity from its owner. This unlimited liability makes it a disadvantage. An advantage is that it is reported and taxed on the owner's personal income tax return instead of a business income tax return
describe a partnership
owned by two or more people and is not legally separate from its owners
what are the three types of partnerships that limit liability?
limited partnership (LP), limited liability partnership (LLP) and a limited liability company (LLC)
describe a corporation
a business legally separate form its owners Shareholders are not not liable for corporate acts and debts which is the main advantage. The main disadvantage is that the corporation income is taxed and any distribution of income to its owners through dividends is taxed as part of the owner's personal income which is known as double taxation
what is the sarbanes-oxley act (SOX)?
congress passed this to help curb financial abuses at companies that issue stock to the public
what is a governance system?
it is set up by companies to reduce the risk of accounting fraud
what are assets?
resources with future benefits that are owned or controlled by a company
what are liabilities?
what a company owes its nonowners in future payments or services
what is equity?
refers to the claims of its owners on assets
equity=owner capital-owner withdrawal+revenues-expenses
what is the accounting equation?
what are the four types of financial statements?
income statement, statement of owner's equity, balance sheet and statement of cash flows
describe each financial statement
an income statement describes revenues and expenses along with net income/loss
a statement of owner's equity explains changes in equity from net income/loss and from owner investments/withdrawals
a balance sheet describes a company's financial position at a point in time
a statement of cash flows identifies cash inflows and outflows
what is a return on assets (ROA)?
ROA=Net income/average total assets