INTRO TO FINANCIAL ACCOUNTING

annual report

a yearly report from management to the share holders on the preceding s of the company

comparability

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

liabilities

amounts owed to creditors in the form of debt and other obligations

cost principle

an accounting principle that states that companies should record assets at their cost

journal

an accounting record in which transactions are initially record in chronological order

International Accounting Standards Board (IASB)

an accounting standard-setting body that issues standards adopted by many countries outside of the United States

monetary unit assumption

an assumption that requires that only those things that can be expressed in money are included in the the accounting records.

Time period assumption

an assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business

ratio

an expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, a rate or a proportion.

account

an individual accounting record of increases and decreases in specific asset, liability or stockholders equity items

Certified Public Account

an individual who has met certain criteria and is thus allowed to perform audits of corporations

property, plant, and equipment

assets of a relatively permanent nature that companies use in the business and are not intended for sale

Intangible assets

assets that do not have physical substance

current assets

cash and other resources that companies reasonable expect to convert to cash or use up within one year or the operating cycle, which ever is longer

free cash flow

cash provided by operating activities adjusted for capital expenditures and dividends paid.

stockholder's equity

claims of owners to the assets of a company

accounting transactions

events that require recording in the financial statements because they affect assets, liabilities, or stockholders equity

long-term investments

generally, investments in stocks ans bonds of other companies that companies normally hold for many years. Also includes long-term assets, such as land and buildings, not currently being used in the company's operations

profitability ratios

measures of the income or operating success of a company for a given period of time

Debt to total assets ratio

measures the percentage of total financing provided by creditors; computed as total debt divided by total assets

notes to the financial statements

notes that clarify information in the financial statement, as well as expand upon it where additional detail is needed

long-term liabilities (long-term debt)

obligations that companies do not expect to pay withing one year of the operating cycle

current liabilities

obligations that companies reasonably expect to pay within the next year or operating cycle, whichever is longer

statement of cash flows

provides information to uses about the cash payments and receipts of a business about a specific point in time.

reliability

reliability the quality of information that gives assurance that it is free of error and bias

accounting

the information system that identifies, records, and communicates the economic events of an organization to interested users.

debit

the left side of an account

general journal

the most basic form of journal

retained earnings

the net income that has been retained in the corporation

journalizing

the procedure of entering transaction data in the journal

posting

the procedure of transferring journal entries to the ledger accounts

relevance

the quality of information that indicates the information makes a difference in a decision

credit

the right side of an account

retained earnings statement

the statement that shows the amounts and causes of changes in retained earnings during the period

stockholder's equity

the stockholder's claim on total assets

accounting information system

the system of collecting and processing transaction data and communicating financial information to interested parties

common stock

the term used to describe the total amount paid in by stock holders for the shares they purchased.

consistency

use of the same accounting principles and methods from year to year within a company

net loss

when expenses exceed revenues

net income

when revenue exceed expenses

Fair Value

1. The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies.

Statement of Stockholder's equity

A financial statement that presents the factors that caused stockholders equity to change during the period, including those that caused retained earnings to change

Auditors Report

A report prepared by an independent outside auditor

Full disclosure principle

Accounting principle that dictates that companies disclose circumstances and event that make a difference to financial statement users

Economic entity assumption

An assumption that economic events can be identified with a particular unit of accountability

basic accounting equation

Assets = Liabilities + Stockholder's Equity

Solvency Ratios

Measures of the ability of the company to survive over a long period of time

Liquidity ratios

Measures of the short-term ability of the company to pay its maturing obligation and to meet unexpected needs for cash

Solvency

The ability of a company to pay interest as it comes due and to repay the face value of debt at maturity

Liquidity

The ability of a company to pay obligations that are expected to become due within the next year or operating cycle

Sarbanes Oxley Act (SOX)

The act passed in 2002 by Congress to try to reduce unethical corporate behavior and consequently decrease the likelihood of future corporate scandals.

Securities and Exchange Commission (SEC)

The agency of the U.S. government that oversees U.S. Financial markets and accounting standards-setting bodies.

GAAP

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.

Financial Accounting Standards Board (FASB)

The primary accounting standard-setting body in the United States

classified balance sheet

a balance sheet that contains a number of standard classification or sections

corporation

a business organized as a separate legal entity having ownership divided into transferable share of stock

sole proprietorship

a business owned by one person.

partnership

a business owned by two or more persons associated as partners

income statement

a financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time

general ledger

a ledger contains all asset, liability, and stockholders' equity accounts

chart of accounts

a list of a company's accounts

Trial balance

a list of accounts and their balances at a given time

earnings per share (EPS)

a measure of the net income earned on each share of common stock; computed as net income minus preferred stock dividends divided by the average number of common shares outstanding during the year.

current-ratio

a measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities

dividend

a payment of income to a stockholder

comparative statements

a presentation of the financial statements of a company for more than one year

auditors report

a report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position sand results of operations and their conformance with generally accepted accounting standards.

annual report

a report prepared by corporate management that presents financial information including financial statements, notes, a management discussion and analysis section, and an independent auditor's report

management discussion and analysis

a section of the annual report that presents management's views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations

double-entry system

a system that records the dual effect of each transaction in appropriate accounts

ratio analysis

a technique for evaluating financial statements that expresses the relationship among selected financial statement data

assets

resources owed by a business

assets

resources owned by a business from which future economic benefits are expected

conservatism

the approach of choosing an accounting method, when in doubt, that will least likely overstate assets and net income

Going concern assumption

the assumption that the enterprise will continue in operation for the foreseeable future.

operating cycle

the average time required to go from cash to cash in producing revenues

T accounts

the basic form of an account

materiality

the constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor

expenses

the cost of assets consumed or services used in the process of generating revenues

Working capital

the difference between the amounts of current assets and current liabilities

balance sheet

the financial statement that reports assets and claims to those assets at a specific point in time

ledger

the group of accounts maintained by a company

revenue

the increase in assets resulting form the sale of a product or service in the normal course of business

accounting

the information system that identifies, records, and communicates the economic events of an organization to interested users