Chapter 1

In what order MUST the financial statements be prepared?

1) Income Statement 2) Statement of Owner's Equity 3) Balance Sheet

Corporation

A business organized under state law that is a separate legal entity.

Sole Proprietorship

A business with a single owner

Partnership

A business with two or more owners and not organized as a corporation.

Limited-Liability Company (LLC)

A company in which each member is only liable for his or her own actions.

Cost Principle

A principle that states that acquired assets and services should be recorded at their actual cost.

International Financial Reporting Standards (IFRS)

A set of global accounting guidelines, formulated by the International Accounting Standards Board (IASB).

Accounts Payable

A short-term liability that will be paid in the future.

Generally Accepted Accounting Principles (GAAP)

Accounting guidelines, currently formulated by the Financial Accounting Standards Board (FASB); the main U.S. accounting rule book.

What is an example of a liability

Accounts Payable

Revenues

Amounts earned from delivering goods or services to customers.

Transaction

An event that affects the financial position of the business and can be measured with faithful representation.

Audit

An examination of a company's financial statements and records

Economic Entity Assumption

An organization that stands apart as a separate economic unit.

Creditor

Any person or business to whom a business owes money.

The accounting equation is

Assets = Liabilities + Owner's Equity

Going Concern Assumption

Assumes that the entity will remain in operation for the foreseeable future.

The accounting equation is assets = liabilities + owner's equity. These are the same accounts that are reported on the...

Balance Sheet

Financial Statements

Business documents that are used to communicate information needed to make business decisions.

Four components of owner's equity are...

Capital Drawing Revenues Expenses

What are three examples of assets?

Cash Supplies Land

Certified Management Accountant (CMA)

Certified professionals who specialize in accounting and financial management knowledge. They typically work for a single company.

Liabilities

Debts that are owed to creditors

As a component of owner's equity, drawing would __________ owner's equity

Decrease

As a component of owner's equity, expenses would __________ owner's equity

Decrease

Assets

Economic resources that are expected to benefit the business in the future. Something the business owns or has control of.

Revenues less expenses = Net income may see seen on which financial statement?

Income Statement

As a component of owner's equity, capital (used for owner's investments) would __________ owner's equity

Increase

As a component of owner's equity, revenues would __________ owner's equity

Increase

Certified Public Accountant (CPA)

Licensed professional accountants who serve the general public

Return on Assets (ROA)

Measures how profitably a company uses its assets. Net income / Average total assets.

Owner's Capital

Owner contributions to a business

Another way to denote a negative number in accounting is by using

Parenthesis

Owner's Withdrawals

Payments of equity to the owner

Faithful Representation

Providing information that is complete, neutral, and free from error.

Statement of Cash Flows

Reports on a business's cash receipts and cash payments for a specific period.

Balance Sheet

Reports on the assets, liabilities, and stockholders' equity of the business as of a specific date.

Income Statement

Reports the net income or net loss of the business for a specific period.

Sarbanes-Oxley Act (SOX)

Requires management to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Statement of Owner's Equity

Shows the changes in the owner's capital account for a specific period.

The four components of owner's equity are added/subtracted with beginning capital to arrive at ending capital in which financial statement?

Statement of Owner's Equity

Monetary Unit Assumption

The assumption that requires the items on the financial statements to be measured in terms of a monetary unit.

Accounting Equation

The basic tool of accounting, measuring the resources of the business (what the business owns or has control of) and the claims to those resources (what the business owes to creditors and to the owners). Assets = Liabilities + Equity.

Expenses

The cost of selling goods or services

Financial Accounting

The field of accounting that focuses on providing information for external decision makers. IE: investors, lenders, customers, and the federal government.

Managerial Accounting

The field of accounting that focuses on providing information for internal decision makers. IE: company's managers and employees.

Accounting

The information system that measures business activities, processes the information into reports, and communicates the results to decision makers.

Equity

The owner's claims to the assets of the business.

International Accounting Standards Board (IASB)

The private organization that oversees the creation and governance of International Financial Reporting Standards (IFRS).

Financial Accounting Standards Board (FASB)

The private organization that oversees the creation and governance of accounting standards in the United States.

Net Loss

The result of operations that occurs when total expenses are greater than total revenues.

Net Income

The result of operations that occurs when total revenues are greater than total expenses.

Accounts Receivable

The right to receive cash in the future from customers for goods sold or for services performed.

Securities and Exchange Commission (SEC)

U.S. governmental agency that oversees the U.S. financial markets.