Accounting Chapter 1,2,3,4

Monetary Unit Assumption

Requires that companies include in the accounting records only transaction data that can be expressed in money terms. This assumption enables accounting to quantify (measure) economic events.

proprietorship

a business owned by one person. The owner is often the manager/operator of the business. Is personally liable for all debts of the business.

comparability

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

Economic Entity Assumption

can be any organization or society. It requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

Statement of cash flows reports

1) the cash effects of a company operations during a period. 2) its investing activities. 3) its financing activities. 4) the net increase or decrease in cash during the period. 5) the cash amount at the end of the period.

corporation

A business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock. The holders of the shares (stockholders) enjoy limited liability, where they are not personally liable for the debts of the corporation entity. described as an "unlimited life" typically because ownership can be transferred without dissolving the corporation, and can be recognized as a person.

Permanent Accounts

Asset, Liability, Owners Equity

Fair Value Principle

Assets and liabilities should be reported at the price received to sell an asset or settle a liability.

FASB (Financial Accounting Standards Board)

Primary accounting standard-setting body in the United States. Public companies must follow their standards.

Accrual Accounting

Requires that revenue be recorded when earned and that expenses be recorded when incurred, irrespective of when the related cash movements occur

debit - credit + In owners equity Determined by revenues, expenses, dividends

Retained Earnings

Debit -credit+ Gross increases in stock holders equity, results from business activities entered into for the purpose of earning income.

Revenue

Temporary Accounts

Revenue, Expense, Dividend

SEC (Securities and Exchange Commmission)

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

Going Concern assumption

The assumption that the company will continue in operation for the foreseeable future.

Revenue Recognition Principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

consistency

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

partnership

a business owned by two or more persons associated as partners. Transactions must be kept separate form the personal activities of the partners. Each person has unlimited liability for the debts of the partnership.

materiality

a company specific aspect of relevance. An item is material when its size makes it likely to influence the decision of an investor or creditor.

Full disclosure principle

accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.

What is a fiscal year?

an accounting time period that is one year in length. Usually begins on a first day of a month and ends 12 months later.

Debits + Credits - Its in assets

assets

debit - credit + has to do with stock

common stock

Enhancing qualities of accounting

comparability, consistency, verifiability, timeliness, understandability

for every Debit there must be a

credit

what are some "decreases" in stockholders equity

expenses, and dividends.

What are some increases of stock holders equity

investments of stock holders and revenue

Expense + Dividends

money that goes out of the business

what are the three form of ownership?

proprietorship,partnership, corporation

fundamental qualities of accounting

relevance, predictive value, confirmatory value, and size.

GAAP (Generally Accepted Accounting Principles)

standards and practices used by publicly held corporations in the US and a few other countries in the preparation of financial statements. These standards indicate how to report economic events.

Time Period Assumption

when accountants divide the economic life of a business into artificial time periods. It is an assumption.

Historical Cost Principle

An accounting principle that states that companies should record assets at their cost.

debit + credit - The distribution of cash or other assets to stock holders. They also reduce retained earnings. but, they are not an expense.

Dividends

Expense Recognition Principle

Efforts (expenses) should be matched with results (revenues).

debit+ credit- these are the cost of assets consumed or services used in process of earning revenue. They are the decrease in stockholders equity that result from operating the business

Expenses

debit - credits+ its in liabilities

Liabilities

A=

L+ OE