Mod 9 Flashcards
Accrual
When cash follows the economic activity
Accrual basis accounting assumption
Key assumption in financial reporting
Firm records transactions that change its financial statements in the period when the events occur (not when it receives the benefits or pays the costs)
Auditor’s report or Auditor’s opinion
A statement by the auditor expressing its view of a company’s accounting process and the resulting financial statements
Of importance is the auditor’s opinion on whether the accounting process complies with GAAP and if the company’s financials fairly represent the company
Cash basis accounting
An accounting approach where the company records revenue only when it receives cash and records expenses only when it pays cash
Prohibited by GAAP
Classified balance sheet
A balance sheet that groups together similar assets and liabilities
Comparability
An enhancing quality of useful information
Results when different companies use the same accounting principle
Cost constraint
The constraint of determining whether the costs incurred to provide the financial information outweigh the benefit that financial statement users will gain from having the info available
Cost principle or historical cost principle
When companies record assets at their initial cost
Current assets
Assets that a company expects to convert to cash within 1 year or its operating cycle (whichever is longer)
Appear in assets section of balance sheet
Current liabilities
Obligations that a company expects to pay within 1 year or the operating cycle (whichever is longer)
Appear in liabilities section of balance sheet
Deferral
When cash comes before economic activity
Depreciation
Practice of allocating costs of assets across a number of years
Economic entity assumption
Position that company transactions should not intermingle with personal transactions or transactions of other companies
Expense recognition principle or matching principle
Practice of recording expenses in the period in which the firm incurs them (regardless of when they are paid)
Match expenses with revenues in the period when it expends effort to generate revenue
Fair value principle
When a business reports assets and liabilities at their fair market value on the balance sheet
Faithful representation
A fundamental quality of useful information
Accounting info accurately depicts what happened
Financial accounting standards board
Primary accounting standard setting body in the US
Full disclosure principle
Principle that companies must disclose all circumstances and events that would make a difference to financial users
Generally accepted accounting principles
Set of accounting rules and practices in the US that have authoritative support
Going concern assumption
Assumption that the business will not liquidate shortly and that the business will continue to operate and satisfy its obligations
Goodwill
Intangible asset that results from the acquisition of one company by another for a premium (amount equals the difference between what a purchasing company pays for the target company over the target’s book value)
Appears in asset section of balance sheet
Intangible assets
Assets that do not have a physical substance but are very valuable
Brand names, copyright, patent, trademark
Appear in asset section of balance sheet
International accounting standards board
Primary accounting standard setting body for foreign countries
Internal financial reporting standards
Set of accounting rules and practices adopted by most foreign countries that have authoritative support of the IASB
