Unit 1 Chapter 1.1 Flashcards
(30 cards)
What are the three activities of the accounting process?
Identify economic events, record events in order to provide a history of financial activities and communicate information to interested users via accounting reports.
What does it mean for data to be reported in the aggregate?
Data should be presented in a summarized or collective form. Usually, to protect privacy or personal information.
What actions are required for an analysis?
Involves the use of ratios, percentages, and data visualization (graphs and charts) to highlight significant financial trends and relationships.
What is interpretation in accounting?
Explaining the uses, meaning, and limitations of reported data.
What does bookkeeping involve?
Only the recording of economic events
What are internal users?
Managers who plan, organize, and run a business.
What are external users?
Individuals and organizations outside a company who want financial information about the company. The two most common types are investors and creditors.
Why was the Sarbanes-Oxley Act passed?
US regulators and lawmakers were concerned that the economy would suffer if investors lost confidence in corporate accounting because of unethical financial reporting.
What is GAAP?
Generally accepted accounting principles. Standards that are generally accepted and universally practiced by the accounting profession. Indicate how to report economic events.
What is relevance in accounting?
Financial information is capable of making a difference in a decision.
What is faithful representation?
Numbers and descriptions match what really existed or happened - they are factual
What is the historical cost principle (or cost principle)?
Dictates that companies record assets at their cost.
Do companies use the historical cost principle to value assets only at the time the asset is purchased?
No. The assets will be valued at costs over its lifetime.
What is the monetary unit assumption?
Requires that companies include only transaction data that can be expressed in money terms in the accounting records. This prevents some relevant information from being entered into accounting records.
What is the economic entity assumption?
Requires that the activities of the entity be kept separate and distinct from the activities of tits owner and all other economic entities. i.e. No family favors with company company
What are the major 3 types of businesses?
Proprietorship- a business owned by one person. Partnership - a business owned by two or more persons. Corporation- business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock.
What is the basic accounting equation?
Assets = Liabilities + Owner’s Equity
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What are assets?
Resources a business owns
What are liabilities?
Creditor claims against total assets. Existing debts and obligations
Can creditors legally force the liquidation of a business that does not pay its debts?
Yes. If this process happens, the law requires that creditor claims be paid before ownership claims are paid.
What is owner’s equity?
Ownership claim on total assets. It is equal to total assets minus total liabilities.
How do you find out what amount of assets belongs to owners?
We subtract the creditors’ claims (the liabilites) from assets. The remainder is the owner’s claim on the assets or owner’s equity.
What are investments by owner?
The assets the owner puts into the business. Investments increase owner’s equity and are recorded as owner’s capital.
Is it true that assets are claimed by either creditors or owners?
Yes
