ACCT: Chapter 1

Types of Financial Statements

-balance sheet -income statement -statement of cash flows -statement of stockholders' equity

Fundamental activities of a business

-financing -investing -operating

stockholders' equity arises primarily from amounts...

-invested by shareholders -earned by the corporation

Faithful representation requires information to have what characteristics?

-neutrality -completeness -free from material error

What is on a balance sheet?

-utilities payable (liabilities) -accounts receivable (assets) -common stock (stockholders' equity)

Comparability

Ability to compare the accounting information of different companies because they use the same accounting principles.

Predictive Value

Consistently increasing income helps forecast the company's ability to generate future cash.

The private sector organization that is currently responsible for setting accounting standards in the United States is the

Financial Accounting Standards Board (FASB)

Materiality

Financial info that may impact investors' and creditors' decisions and must be reported under GAAP.

Confirmatory Value

Positive income is consistent with effectiveness of management.

neutrality

Requires that financial info should not influence decision making to achieve a premeditated result.

What are retained earnings?

The net income earned over the life of the company that has not been distributed as dividends.

Accounting

The system that maintains records of a company's operations and then communicates that info to decision makers.

Management discussion and analysis and note disclosures to the financial statements are included in the

annual report

Salaries already paid to employees for the month is a(n) ______ account that appears on the ______.

expense; income statement

Assets=

liabilities + stockholders equity

Financial Statements

periodic reports published by the company for the purpose of providing information to external users.

To be useful for decision making, information should possess the fundamental qualities of...

relevance and faithful representation

The purpose of an income statement is to

summarize the profit-generating activities that occurred during a particular reporting period.