Accounting 2110 Flashcards
(58 cards)
Two fundamental characteristics of useful information
Relevance- Is the info capable of making a difference by helping users predict, providing feedback, or influencing a decision? (predictive value, confirmatory value, or material)
Faithful Representation- complete, neutral, and free from error
Info should have 4 enhancing characteristics:
Comparability
Verifiability
Timeliness
Understandability
Cost Constraint Definition
Benefit received from accounting info should be greater than the cost of providing that info
If cost doesn’t exceed benefit = not useful
If cost of obtaining info is a constraint and results in excessive costs, entity is allowed to avoid reporting that info
4 basic assumptions of Accounting
Economic Entity
Going Concern
Time Period
Monetary Unit
Economic Entity Assumption
Each company is accounted for separately from owners
Going Concern Assumption
Assumes that a company will continue to operate long enough to carry out existing commitments
Time Period Assumption
Allows the life of a company to be divided into artificial time periods sp that net income can be measures for specific need (monthly, quarterly, annually)
Monetary Unit Assumption
Requires a company to account for and report its financial results in monetary terms, such as US dollars or Japanese Yen
4 Basic Principles of Accounting
Historical Cost
Revenue Recognition
Expense Recognition
Conservatism
Historical Cost Principle
Requires company activities to be initially measured at cost- the exchange price at the time off the activity
Revenue Recognition Principle
Used to determine when revenue is recorded and reported, usually occurs when services are performed or goods are delivered. Collection of cat is reasonably assured
Expense Recognition Principle
Requires that expenses are reported and recorded in the same period as the revenue that it helped generate
AKA Matching Principle
May or may not be the same period that cash is exchanged
Conservatism Principle
States that accountant s should take care to avoid overstating assets or incomes when they prepare financial statements
Accounting Transaction
Any economic event that affects a comoamnys assets liabilities, or equity at tevent time
Account
Accounting record that accumulates the activity of a specific item and yields the items balance
Chart of Accounts
List of accounts the company uses
Events
Things that much be recorded in financial statements
Internbal vs External Events
Internal- Occurs within company, Transaction iF it results in a financial impact that you can measure with reasonable accuracy
External - Between company and outside party, involving change of assets, liabilities, equity
Must be recorded
Transaction Analysis (Definition + 3 steps)
Process of determining the economic effects of a transaction.
1. Write down accounting equation
2. Identify financial statements elements that are affected by transaction
3. Determine whether the elements increased or decrease
Double Entry Accounting
Describes the system used by companies to record the effects of transactions on the accounting equation
Debit/Credit Procedures
- Draw a T-Account and label each side as either debit or credit (right- credit. left- debit.)
- Determine the normal balance of an account. All counts have a normal balance
- Increases or decreases to an account are based on the normal balance of the account.
Double entry system requires debit and credit to _______
Always balance
Balance of T-account is determined by _____
excess
Basic accounting equation gives us our ____
“normal balances”
