Chapter 2 Flashcards
(17 cards)
What are the five Principles of accounting?
To record only facts involving monetary values.
The Business is an entity independent of its shareholders’ personal wealth.
That a business will operate indefinitely.
(Value of a business based on assumption that it is a “going concern)
That assets are adjusted for use and deterioration
(Value of asset recorded “at cost”)
Revenues must be matched with associated operation expenses for each accounting period.
Accounting.
Estimating/recording financial change of a business.
Constant monitoring/analysis of this data.
Financial Accounting.
Recording/analyzing financial data of a business, then forwarding this info to both management and investors out there.
Investor
Anyone who owns or might invest in the organization.
He. Will. Ask. QUESTIONS!!
Creditor
Some one or group that the organization owes money to.
“to whom the organization is indebted”
Assets
Goods owned by the business
e.g. cash, inventory, real estate, machinery
Liabilities
Elements that the business owes others money for.
e.g. accounts payable, taxes payable, bank loans, mortgages)
Shareholder’s Equity
and equation!
Net worth of the business to its owners.
Assets - Liabilities = Shareholders’ Equity.
Revenue
Money generated from the sale of products and/or services.
Operating Expenses
(essentially short term costs incurred during the accounting period)
Profits
and Equation!
Amount available for dividends and retained earnings.
Capital Expenditures
Long-term costs associated with items used to make money over several periods.
Income Statement
Statement that shows all revenues and operating expenses within an accounting period.
(Also known as Statement of Earnings)
What counts as Revenue items? (4)
Sales
Dividends received from other companies
Interest on investments
Proceeds from selling assets.
What counts as Operating Expense items? (2 categories, 7 items total)
Cost of Goods Sold: Raw materials Labour Power (?) Depreciation
Other:
Administrative expenses
Insurance
Property taxes
(Income Statement)
What counts as Revenue items? (4)
Sales
Dividends received from other companies
Interest on investments
Proceeds from selling assets.
What counts as Operating Expense items? (2 categories, 7 items total)
Cost of Goods Sold: Raw materials Labour Power (?) Depreciation
Other:
Administrative expenses
Insurance
Property taxes
