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Accounting 1 > Exam 1 - Chapters 1-3 > Flashcards

Exam 1 - Chapters 1-3 Flashcards

1
Q

Financial Accounting

A
  • Information describing the financial resources, obligations, and activities of an economic entity
  • Assists external users
  • “General-purpose” accounting information
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2
Q

Management Accounting

A
  • The development and interpretation of accounting information intended specifically to assist management in operating a business
  • Only to internal users
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3
Q

Accounting System

A
  • Consists of the personnel, procedures, technology, and records used by an organization
  • Develop accounting information
  • Communicating information to decision makers
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4
Q

Basic Functions of an Accounting System

A
  • Interpret and record the effects of business transactions
  • Classify the effects of similar transactions in a manner that permits determination of the various totals and subtotals useful to management and used in accounting reports
  • Summarize and communicate the information contained in the system to decision makers
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5
Q

Control Environment

A
  • The foundation for all the other elements of internal control, setting the overall tone for the organization
  • Commitment to ethical values
  • Responsibility
  • Accountability
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6
Q

Risk Assessment

A
  • Identifying, analyzing, and managing those risks that pose a threat to the achievement of the organization’s objectives
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7
Q

Control Activities

A
  • The policies and procedures that management puts in place to address the risks identified during the risk assessment process
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8
Q

Information and Communication

A
  • Developing information systems to capture and communicate operational, financial, and compliance-related information necessary to run the business
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9
Q

Monitoring Activities

A
  • Enable the company to evaluate the effectiveness of its system of internal control over time
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10
Q

External Users

A
  • Individuals and other enterprises that have a current or potential financial interest in the reporting enterprise, but that are not involved in the day-to-day operations of that enterprise
  • Owners, creditors, investors, labor unions, government, suppliers, customers
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11
Q

Cash Flow Prospects

A
  • Composed of return of investment and return on investment
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12
Q

Return of Investment

A
  • The return to you at some future date of the amount you had invested or loaned
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13
Q

Return on Investment

A
  • The company paying you something for the use of your funds, wither as an owner or a creditor
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14
Q

Financial Statement

A
  • A monetary declaration of what is believed to be true about an enterprise
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15
Q

Types of Financial Statements

A
  • Balance sheet
  • Income statement
  • Statement of cash flows
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16
Q

Balance Sheet

A
  • A position statement that shows where the company stands in financial terms at a specific date
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17
Q

Income Statement

A
  • An activity statement that shows details and results of the company’s profit-related activities for a period of time
  • A summary of the company’s revenue and expense transactions for a period of time
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18
Q

Statement of Cash Flows

A
  • An activity statement that shows the details of the company’s activities involving cash during a period of time
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19
Q

Statement of Financial Position

A
  • Balance sheet
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20
Q

General Purpose Information

A
  • “One-size fits all”
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21
Q

Accounting

A
  • Provides information that is useful in making good decisions, and as a a result of good decisions societal prosperity and welfare is maximied
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22
Q

Accounting

A
  • The “language of business”
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23
Q

Tax Accounting

A
  • Information must conform with income tax reporting requirements
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24
Q

The Accounting Process

A
  • The Accounting Process ->
  • Accounting Information ->
  • Decision Makers ->
  • Economic Activities ->
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25
Q

Components of Internal Control

A
  • Control environment
  • Risk assessment
  • Control activities
  • Information and communication
  • Monitoring
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26
Q

GAAP

A
  • Generally Accepted Accounting Principles
  • Provides a general framework for determining what information is included in the financial statements and how that information is prepared and presented
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27
Q

SEC

A
  • Securities and Exchange Commission
  • Governmental agency with legal power to establish accounting principles and financial reporting requirements for publicly owned corporations
  • Delegates standard setting responsibility to the FASB
  • Reviews financial statements
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28
Q

FASB

A
  • Financial Accounting Standards Board
  • Independent rule-making body
  • Recognized as the most authoritative source of GAAP
  • Maintains the ASC which includes all standards and represents an official expression of GAAP
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29
Q

IASB

A
  • International Accounting Standards Board
  • London-based panel of elite professionals with expert knowledge of accounting methods used in the most vibrant capital markets
  • Issues IFRS
  • More that 100 countries require these standards
  • SEC accepts their financial statements
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30
Q

Audits

A
  • Financial Statement Audits
  • An examination of a company’s financial statements, designed to determine the fairness of the statements
  • Judged based on the standards of GAAP
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31
Q

Legialation

A
  • Board of directors and audit committees are tasked with additional oversight responsibilities
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32
Q

Professional Organizations

A
  • Improve the quality of accounting information that is used by investors, creditors, management, and others
33
Q

AICPA

A
  • American Institute of CPAs
  • Provide members with the most relevant knowledge
  • Works closely with FASB to help GAAP
34
Q

IMA

A
  • Institute of Management Accountants
  • Provides a forum for many functions and the advocacy of highest ethical and best business practices in management accounting and finance
  • Influences concepts and ethical practices for management accounting and financial accounting
35
Q

IIA

A
  • Institute of Internal Auditors
  • Primary institutional professional association dedicated to the promotion and development of the practice of internal auditing
  • Provides audit specialty services
36
Q

AAA

A
  • American Accounting Association

- Further discipline the profession of accounting

37
Q

CPA

A
  • Certified Public Accountant
38
Q

CMA

A
  • Certified Management Accountant
39
Q

CIA

A
  • Certified Internal Auditor
40
Q

Bookkeeping

A
  • The recording of routine transactions and day-to-day record keeping
41
Q

Accounting Cycle

A
  • The sequence of accounting procedures used to record, classify, and summarize accounting information in financial reports at regular intervals
42
Q

The First Three Steps of the Accounting Cycle

A
  • Journalize transactions
  • Post each journal entry to ledger accounts
  • Prepare a trial balance
43
Q

Accounting Records

A
  • Establish accountability
  • Keep track of activities
  • Obtain information on a transaction
  • Track the efficiency of a department
  • Documentary evidence of business activities
44
Q

Account

A
  • The record used to keep track of the increases and decreases in financial statement items
  • Ledger account
  • Three elements: title, debit side, and credit side
45
Q

Ledger

A
  • The accounting record which includes the entire group of individual accounts
46
Q

Assets

A
  • Increase debit
  • Decrease credit
  • Economic resources
  • Owned by the business
  • Expected to benefit future operations
47
Q

Liabilities

A
  • Decrease debit
  • Increase credit
  • Financial obligations or debts
  • Negative future cash flows
48
Q

Owner’s Equity

A
  • Decrease debit
  • Increase credit
  • Represents the owners’ claims on the assets of the business
49
Q

Double-entry Accounting

A
  • Every transaction is recorded by equal dollar amounts of debits and credits
50
Q

The Journal

A
  • The information about each business transaction is initially recorded here
  • Day-by-day
  • Later transferred to the general ledger
51
Q

Posting

A
  • Updating the ledger accounts for the effects of the transactions recorded in the journal
52
Q

Net Income

A
  • An increase in owner’s equity from profits of the business
  • As income is earned, either an asset in increased or a liability is decreased
  • Net income always results in the increase of owner’s equity
53
Q

Retained Earnings

A
  • Represents the total net income of the corporation over the entire life time of the business
54
Q

Accounting Period

A
  • The period of time covered by an income statement
55
Q

Time Period Principle

A
  • Net income is measured for relatively short accounting periods of equal length to facilitate the interpretation of financial events and the preparation of financial statements
56
Q

Fiscal Year

A
  • The 12-month accounting period used by an entity
57
Q

Revenue

A
  • The price of goods sold and services rendered during an accounting period
  • Owner’s equity increases
  • Increase cash or accounts receivable
  • Gross increase in equity
58
Q

Realization Principle

A
  • Indicates that revenue should be recognized at the time goods are sold or services are rendered
59
Q

Expenses

A
  • The costs of the goods and services used up in the process of earning revenue
  • Decrease owner’s equity
  • Decrease in assets or increase in liabilities
60
Q

The Matching Principle

A
  • Refers to the concept of offsetting expenses against revenue on a basis of cause and effect
61
Q

Accrual Basis of Acounting

A
  • Revenue is recognized the period it is earned

- Expenses are recognized in the period they are incurred

62
Q

Cash Basis of Accounting

A
  • Revenue is recognized when cash is collected

- Expenses are recognized when payments are made

63
Q

Dividends

A
  • A distribution of assets y a corporation to its stockholders
  • Reduces assets and owner’s equity
  • Not an expense
64
Q

Features of the Balance Sheet

A
  • Heading: names of the business, name of the financial statement, and date
  • Assets: start with cash
  • Liabilities: before equity
  • Equity: divided into capital stock and retained earnings
65
Q

Business Entity

A
  • An economic unit that engages in identifiable business activities
  • Business activities are separate from personal activities
66
Q

The Cost Principle

A
  • Historical cost refers to the original amount the entity paid to acquire the asset
67
Q

The Going-Concern Assumption

A
  • Indicates that we assume that a business will be a continuing enterprise which will operate for an indefinite period
68
Q

The Objectivity Principle

A
  • Describes information that is factual, definite, and verifiable
  • Lacks subjectivity
  • A primary reason for reporting long-term assets at historical cost as that value is verifiable
69
Q

The Stable-Dollar Assumption

A
  • A limitation of measuring assets at historical cost is that the value of the monetary until or dollar is not always stable
70
Q

Inflation

A
  • A term used to describe the situation where the value of the monetary unit decreases, meaning that it will purchase less than it did previously
71
Q

Deflation

A
  • The value of the monetary unit increases, meaning that it will purchase more than it did previously
72
Q

Increases in Owners’ Equity

A
  • Investments of cash or other assets by owners

- Earnings from profitable operation of the business

73
Q

Decreases in Owners’ Equity

A
  • Payments of cash or transfers of other assets to owners

- Losses from unprofitable operation of the business

74
Q

Sole Proprietorship

A
  • An unincorporated business owned by one person
  • Often the owner also acts as the manager
  • Small retail stores, farms, law practices, medicine, etc.
  • Most common form of business organization
75
Q

Partnership

A
  • Owned by two or more people
  • Small businesses and large professionals
  • Owners are responsible for debts
76
Q

Corporations

A
  • Entity separate from owners
  • Owners are not responsible for debts
  • Owners can lose no more than what they have invested (limited liability)
  • Dominant form of business
  • Stockholders
77
Q

Liquidity

A
  • The ability of the business to pay its debts as they come due
78
Q

Profitibility

A
  • The company’s ability to generate net income from the business
79
Q

Adequate Disclosure

A
  • Users of financial statements are informed of all information necessary for the proper interpretation of the statements

Accounting 1 (1 decks)

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