Financial Accounting Ch.0-2

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sole proprietorship

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business entity with single owner. has owner's equity.

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partnership

Back 2

business entity owned by two or more individuals with characteristic of unlimited liability. has owners equity.

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corporation

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business entity organized under laws of particular state. Ownership evidenced by shares of stock. has stockholders equity.

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assets

Back 4

future economic benefit. Found on balance sheet. Ca, LTA

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liabilities

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obligation of a business. found on a balance sheet. CL, LTL

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owner's equity

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owners claim on the assets of the entity. includes retained earnings and capital stock (invested money)

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revenue

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inflow of assets resulting from sale of good and services. part of net income. goes on income statement. (SALES, FEES EARNED, ___ REVENUE, COMMISSIONS EARNED)

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expenses

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outflows fo assets or incurences of liability resulting form delivering goods, rendering services, or carryout out other activities (ADVERTISING, SALARIES and WAGES, COMMISSION EXPENSES, GAS and UTILITIES, COST OF MANUFACTURING, RENT)

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going concern

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assumption that an entiity is not in process of liquidation and that it will continue indefinetely

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monetary unit

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yardstck used to measure amounts in financial statements, dollar in US

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cost principal

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assets recorded at the cost to require them

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time period

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artificial segment on the calender, used as the basis for preparing financial statements

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understandability

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quality of accounting information that makes it comprehensible to those willing to spend the necessary time

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relevance

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make a difference in users opinion.

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reliability

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VERIFIABILITY, NEUTRALITY, REPRESENTATIONAL FAITHFULNESS, the quality that makes accounting information dependable in representing the events that it purports to represent

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comparability

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for accounting information, the quality that allows a user to analyze two or more companies and look for similarities and differences

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consistency

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for accounting information, quality that allows user to compare two or more accounting periods for a single company

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materiality

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the MAGNITUDE of an accounting information ommission or mistatement that will affect the judgement of someone relying on the information

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conservatism

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practice of using the least optimistic estimate when two estimates of amounts are almost equally likely

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liquidity

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nearness to cash of the assets and liabilities. ability of a company to pay its debts as they come due

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operating cycle

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cashh-inventory-A/R-cash
period of time between purchase of inventory and collection of any receivables from sale of inventory

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working capital

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CA-CL

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Current ratio

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CA/CL

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Gross profit

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sales - cogs

cost of goods sold are costs of goods available - ending inventory

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gross profit ratio

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GP/sale
involves 1 expense (cogs)

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profit margin

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NI/sales
involves mutilple expenses

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single step income statement

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Revenues-expenses=net income

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multi-step income statement

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sales-cogs=GP - operating expenses = income from operations +/- revenues/expenses = income before income tax -income tax = net income

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relationships btw financial statements

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IS (net income) - R/E (end R/E) - BS (total assets{CA+LTA} = total liabilities {CL+LTL} + OE {capital stock + R/E}

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controller

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cheif accounting officer fro a company

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treasurer

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officer responsible in an organization for the safeguarding and efficient use of a companys liquid assets

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AICPA

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AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS professional organization for certified public accountants

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SEC

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SECURITES AND EXCHANGE COMMISSION federal agency with ultimate authority to determine rules in preparing statements for companies whose stock is sold to the public

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FASB

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FINANCIAL ACCOUNTING STANDARDS BOARD group in private sector with authority to set accounting standards

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accounting

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process of indentifying, measuring, and communicating economic information to various users

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management accounting

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branch of accounting concerned with providing management with information to facilitate planning and control

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financial accounting

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branch of accounting concerned with preperation of financial statements for outsider use

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balance sheet

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financial statement that summarizes assets, liabilities, and owners equity at a specific point in time

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income statement

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financial statement summarizing revenues and expenses

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dividends

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distribution of net income of a business to its owners

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GAAP

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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES various methods, rules, practices, and other procedures, evolved over time, in response to need to regulate preperation of financial statements

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IASB

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INTERNATIONAL ACCOUNTING STANDARDS BOARD organization formed to develop worldwide accounting standards

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internal auditing

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department responsible in a company for the review and appraisal of its accounting and administrative controls

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auditing

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process of examining financial statements and the underlying records of a company in order to render an opinion as to whether statements are fairly represented

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auditors report

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opinion rendered by a public accounting firm concerning fairness of presentation of financial statemetns

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American Accounting Association

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professional organization for accounting educators

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depreciation

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process of allocating the cost of a long-term tangible asset over its useful life

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corporation

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business entity organized under laws of particular state. ownership evidenced by shares of stock. stockholders equity