CH1 - Intro to Accounting and Business Flashcards Preview

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Flashcards in CH1 - Intro to Accounting and Business Deck (56):
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Three Objectives of Accounting

1. Help users make investment and credit decisions 2. Helps users determine risk 3. Informs users about the economic resources of and claims against the enterprise

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What makes accounting information reliable?

If it is dependable and free from error or bias.

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Difference between financial accounting and managerial accounting?

Financial accounting primarily serves the needs of investors and creditors. Managerial accounting serves the needs of internal constituents -managers and staff- and helps support their decision making

3

Four primary financial statements?

Balance sheet, income statement, statement of changes in equity, and statement of cash flow

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The Accounting Equation

Assets = Liabilities + Owner's Equity

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Assets

A company's resources - things the company owns

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Examples of Assets

Cash, accounts receivable, inventory, land, investments, equipment, buildings

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Liabilities

A company's obligations - amounts the company owes

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The Balance Sheet is also known as?

Statement of financial position

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GAAP

Generally Accepted Accounting Principals

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GAAS

Generally Accepted Auditing Standards

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The Accounting Cycle - Step 1

1. Identify and gather transaction information

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The Accounting Cycle - Step 2

Analyze and Journalize Transactions

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The Accounting Cycle - Step 3

Post to ledgers

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The Accounting Cycle - Step 4

Prepare unadjusted trial balance

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The Accounting Cycle - Step 5

Make adjustments

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The Accounting Cycle - Step 6

Prepare financial statements

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The Accounting Cycle - Step 7

Close the books

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A snapshot of a company's financial position at a particular point in time

The Balance Sheet

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Examples of liabilities

Accounts payable, salaries and wages payable, interest payable, income taxes payable

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Account Form

The form of balance sheet that resembles the basic format of the accounting equation

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Account Payable

The liability created by a purchase on account

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Account Receivable

A claim against the customer created by selling merchandise or services on credit

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Accounting

An information system that provides reports to stakeholders about the economic activities and condition of a business

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Balance Sheet

A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a month or a year

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Business

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers

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Business Entity Concept

A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business

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Certified Public Accountant (CPA)

Public accountants who have met a stat'es education, experience, and examination requirements

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Corporation

A business organized under state or federal statutes as a separate legal entity

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Cost Concept

A concept of accounting that determines the amount initially entered into the accounting records for purchases

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Earnings

The amount by which revenues exceed expenses

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Expenses

Assets used up or services consumed in the process of generating revenues

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Fees Earned

Revenue from providing services

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Financial Accounting

The branch of accounting that is concerned with recording transactions using GAAP for a business or other economic unit and with a periodic preparation of various statements from such records

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Financial Accounting Standards Board (FASB)

The authoritative body that has the primary responsibility for developing accounting principles

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Generally Accepted Accounting Principals (GAAP)

Generally accepted guidelines for the preparation of financial statements

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General-purpose Financial Statements

A type of financial accounting report that is distributed to external users.

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Interest Revenue

Money received for interest

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International Accounting Standards Board (IASB)

An organization that issues International Financial Reporting Standards for many countries outside the United States

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Limited Liability Company (LLC)

A business form consisting of one or more persons or entities filing an operating agreement with a state to conduct business with limited liability to the owners, yet treated as a partnership for tax purposes

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Managerial Accounting

The branch of accounting that uses both historical and estimated data in providing information that management uses in conducting daily operations, in planning future operations, and in developing overall business strategies

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Matching Concept

A concept of accounting in which expenses are matched with the revenue generated during a period by those expenses

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Net Income (Net Profit)

The amount by which revenues exceed expenses

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Objectivity Concept

A concept of accounting that requires accounting records and the data reported in financial statements to be based on objective evidence

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Partnership

An unincorporated business form consisting of two or more persons conducting business as co-owners for profit

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Private Accounting

The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization

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Profit

The difference between amount received from customers and amount paid to provide services to customers

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Proprietorship

A business owned by one individual

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Public Accounting

The field of accounting where accountants and their staff provide services on a fee basis

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Public Company Accounting Oversight Board (PCAOB)

A new oversight body for the accounting profession that was established by the Sarbanes-Oxley Act

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Ratio of Liabilities to Owner's Equity

A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders' equity

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Revenue

Increase in owner's equity as a result of selling services or products to customers

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Sales

The total amount charged customers for merchandise sold, including cash sales and sales on account

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Sarbanes-Oxley Act (SOX)

An act passed by Congress to restore public confidence and trust in the financial statements of companies

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Securities and Exchange Commission (SEC)

An agency of the U.S. Government that has authority and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public

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Unit of Measure Concept

A concept of accounting requiring that economic data be recorded in dollars