Chapter One Flashcards
(28 cards)
Accounting
set of concepts and techniques that are used to measure and report financial information about an economic unit
Financial accounting
external reporting to parties outside the firm
follow GAAP
managerial accounting
providing information for internal management
historical cost principle
The historical cost principle is based on the concept that it is best to report certain financial statement elements at amounts that are tied to objective and verifiable past transactions
Assets
economic resources of the entity, and include such items as cash, accounts receivable (amounts owed to a firm by its customers), inventories, land, buildings, equipment, and even intangible assets like patents and other legal rights. Assets entail probable future economic benefits to the owner.
Liabilities
amounts owed to others relating to loans, extensions of credit, and other obligations arising in the course of business. Implicit to the notion of a liability is the idea of an “existing” obligation to pay or perform some duty
Owners’ equity
Net assets
equivalent to assets minus liabilities
dividends
distributions to shareholders as a return on their investment
reduce retained earnings
retained earnings
The excess of a corporation’s income over its dividends
income of b that has not been distributed to owners
owner investments
Resources provided to an organization by a person in exchange for a position of ownership in the organization
balance sheet
Specific date
A financial statement that presents a firm’s assets, liabilities, and owners’ equity at a particular point in time
focuses on the accounting equation by revealing the economic resources owned by an entity and the claims against those resources (liabilities and owners’ equity).
Asset=
liabilities + stockholder’s equity
work done with promise to pay
add to AR
add to Retained earnings
pay $ for expenses
minus from cash
minus from retained earnings
Income =
Revenue - expenses
Revenue
“top line” amount corresponding to the total benefits generated from business activity
Income
“bottom line” amount that results after deducting expenses from revenue.
Income Statement
A summary of an entity’s results of operation for a specified period of time
provides information about revenues generated and expenses incurred
single or multiple step approach
net income or net loss
difference between the revenues and expenses
on income statement
statement of retained earnings
succinct reporting of these changes in retained earnings from one period to the next. In essence, the statement is nothing more than a reconciliation or “bird’s-eye view” of the bridge between the retained earnings amounts appearing on two successive balance sheets.
A financial statement that discloses changes in retained earnings during a designated period of time; those changes usually attributable to income and dividends
Shareholder dividends decrease
retained earnings
Statement Of Cash Flows
details the enterprise’s cash flows.
reveals how cash is generated and expended during a specific period of time
three unique sections that isolate the cash inflows and outflows attributable to
(a) operating activities, cash
(b) investing activities, purchase
(c) financing activities. payment of dividends
balance
Income Statement net income to
Statement of Retained earnings retained earnings to
Balance Sheet
Asset
The economic resources owned by an entity; entailing probable future benefits to the entity
