ACCT 3001 LSU CH 1-5 VOCAB

Committee established by the AICPA in 1939 at the urging of the SEC to deal with accounting problems. The CAP issued 51 Accounting Research Bulletins and was replaced by the Accounting Principles Board in 1959

Committee on Accounting Procedure (CAP)

Group created in 1984 by the FASB to reach a consensus on how to account for new and unusual financial transactions that might create differing financial reporting practices. The FASB reviews and approves all EITF consensuses, and the SEC views consensus solutions as preferred accounting

Emerging Issues Task Force (EITF)

The organization, based in London, that sets accounting standards accepted for international use. Although many of these international standards are similar to GAAP, the FASB and the IASB are currently working on a convergence project to reduce differences between IFRS and GAAP.

International Accounting Standards Board (IASB)

All the accounting rules accepted for international use, issued by the International Accounting Standards Board.

International Financial Reporting Standards (IFRS)

Organization established by the Sarbanes-Oxley Act that has oversight and enforcement authority for accounting practices and that establishes auditing, quality control, and independence standards and rules.

Public Company Accounting Oversight Board (PCAOB)

Legislation, enacted by the U.S. Congress, intended to combat accounting fraud, curb poor reporting practices, and make sweeping changes to the institutional structure of the accounting profession.

Sarbanes-Oxley Act

Federal agency established to help develop and standardize financial information presented to stockholders. It administers the Securities Exchange Act of 1934 and several other acts. Most companies that issue securities to the public are required to file audited financial statements with the SEC. The SEC also has broad powers to prescribe the auditing practices and standards to be employed by companies that fall within its jurisdiction.

Securities and Exchange Commission (SEC)

A series of statements by the FASB that set forth fundamental objectives and concepts that the Board uses in developing future standards of financial accounting and reporting. These statements of concepts do not establish GAAP. However, this cohesive set of interrelated concepts is intended to be a conceptual framework that will serve as tools for solving existing and emerging problems in a consistent manner.

Statements of Financial Accounting Concepts

The Study Group on Establishment of Accounting Principles, chaired by Francis Wheat, that examined the organization and operation of the Accounting Principles Board and determined the changes needed to attain better productivity and more timely correction of accounting abuses. The Study Group submitted its recommendations to the AICPA Council in the spring of 1972, which adopted the recommendations in total and implemented them by early 1973.

Wheat Committee

The official pronouncements of the Accounting Principles Board, intended to be based mainly on research studies and be supported by reasons and analysis. Between its inception in 1959 and its dissolution in 1973, the APB issued 31 opinions.

APB Opinions

Private standard-setting organization from 1959 to 1973, whose mission was to develop an overall conceptual framework. Its official pronouncements, called APB Opinions, were to be based mainly on research studies and be supported by reasons and analysis. The APB issued 31 opinions in its lifetime.

Accounting Principles Board (APB)

Fifty-one bulletins from the Committee on Accounting Procedure (CAP) during the years 1939 to 1959, issued to deal with accounting problems as they arose. Subsequently, the AICPA created the Accounting Principles Board to provide a structured body of accounting principles.

Accounting Research Bulletins

The products of standard-setting (e.g., FASB standards and EITF consensuses) included in the FASB Codification. The Updates include the background and basis for conclusions for the new pronouncement in a common format, regardless of the form in which such guidance may have been issued. Updates are also issued for amendments to the SEC content in the Codification.

Accounting Standards Updates

The national professional organization of practicing Certified Public Accountants (CPAs), whose various committees and boards have been an important contributor to the development of GAAP.

American Institute of Certified Public Accountants (AICPA)

The arm of the AICPA that had been responsible for developing auditing standards. The Public Company Accounting Oversight Board, established by the Sarbanes-Oxley Act, now oversees the development of auditing standards.

Auditing Standards Board

A systematic arrangement that shows the effect of transactions and other events on a specific element (asset, liability, and so on). Companies keep a separate account for each asset, liability, revenue, and expense, and for capital (stockholders' equity).

account

Standard set of accounting procedures to record transactions and prepare financial statements.

accounting cycle

a system that collects and processes transaction data and then disseminates the financial information to interested parties. Accounting information systems vary widely from one business to another, depending on the nature of the business and its transactions, the size of the company, the volume of data to be handled, and the informational demands.

accounting information system

Accounting approach, in which a company records events that change its financial statements in the periods in which the events occur, rather than only in the periods in which it receives or pays cash. Thus, a company recognizes revenue when it satisfies a performance obligation rather than when it receives cash, and it recognizes expenses when it incurs them rather than when it pays them.

accrual-basis accounting

The recognition of revenue when the performance obligation is satisfied, and the expenses in the period incurred, without regard to the time of receipt or payment of cash.

accrual-basis accounting

Expenses incurred but not yet paid or recorded at the statement date. Examples are interest, rent, taxes, and salaries. An accrued expense on the books of one company is often an accrued revenue to another company.

accrued expenses

Revenues recognized but not yet received in cash or recorded at the statement date. Accrued revenues result from the passage of time (e.g., interest revenue and rent revenue) or from unbilled or uncollected services that a company performed (e.g., commissions and fees).

accrued revenues

A trial balance prepared from a company's ledger accounts after journalizing and posting all adjusting entries. It shows the effects of all financial events that occurred during the accounting period.

adjusted trial balance

Adjustments made at the end of the accounting period to ensure that a company has recorded revenues in the period in which it satisfies the performance obligation and recognized expenses in the period in which it incurs them—in other words, that it has followed the revenue recognition and expense recognition principles. Companies often prepare adjustments after the balance sheet date but date the entries as of the balance sheet date

adjusting entry

One of the parts in the third level of the conceptual framework; a concept that the accounting profession assumes as foundational for the financial accounting structure. There are four basic assumptions: (1) economic entity, (2) going concern, (3) monetary unit, and (4) periodicity.

assumption

Financial statement that shows the financial condition of a company at the end of a period by reporting its assets, liabilities, and owners' equity.

balance sheet

The difference between a depreciable asset's cost and its related accumulated depreciation. Book value of an asset generally differs from its fair value because depreciation is a means of cost allocation, not of valuation.

book value

Journal entries made at the end of a company's annual accounting period to transfer the balances of temporary accounts to a permanent owners' equity account (retained earnings or a capital account, depending on the company's form of organization).

closing entries

Accounting process at the end of the accounting period that reduces the balance of nominal (temporary) accounts to zero in order to prepare the accounts for the next period's transactions. In the closing process, the company transfers revenue and expense account balances to Income Summary, which matches expenses and revenues.

closing process

An enhancing qualitative characteristic of accounting information, which describes information that is measured and reported in a similar manner for different companies. Comparability enables users to identify the real similarities and differences in economic activities between companies.

comparability

One of the ingredients of the fundamental quality of faithful representation. Completeness means that all the information necessary for faithful representation is provided.

completeness

For the accounting profession, a coherent system of objectives and fundamentals established by the FASB, which determine the nature, function, and limits of financial accounting and which lead to consistent accounting standards.

conceptual framework

One of the ingredients of the fundamental quality of relevance, it helps to confirm or correct prior expectations based on previous evaluations of financial reporting information.

confirmatory value

The convention in accounting that dictates that when in doubt, choose the solution that will be least likely to overstate assets and income. The conceptual framework indicates that prudence or conservatism is generally in conflict with the quality of neutrality, because being prudent or conservative can lead to bias in the reported financial position and financial performance.

conservatism

An aspect of comparable information, which indicates that a company applied the same accounting treatment to similar events from period to period. A company can change methods, but it must first demonstrate that the newly adopted method is preferable to the old and then must disclose in the financial statements the nature and effect of the accounting change.

consistency

An account that offsets an asset account on the balance sheet. An example is the accumulated depreciation account, which companies use in order to disclose both the original cost of an asset and the total expired cost to date.

contra asset account

An accounting constraint that requires that the costs of providing financial information be weighed against the benefits that can be derived from using it. The constraint applies to informational requirements established by standard-setting bodies and governmental agencies as well as to companies reporting financial information.

cost constraint (cost-benefit relationship)

The right side of an account. Commonly abbreviated as Cr.

credit

The left side of an account. Commonly abbreviated as Dr.

debit

Approach that requires that financial reporting be useful to investors by helping them assess (1) the company's ability to generate net cash inflows and (2) management's ability to protect and enhance the capital providers' investments.

decision-usefulness

The process of allocating the cost of an asset to expense over its useful life in a systematic and rational manner.

depreciation

The universally used accounting system in which a company records the dual (two-sided) effect of each transaction in appropriate accounts. If a company records every transaction with equal debits and credits, then the sum of all the debits to the accounts must equal the sum of all the credits.

double-entry accounting

An assumption that economic activity can be identified with a particular unit of accountability, by keeping an enterprise's economic activity separate and distinct from that of its owners and any other business unit. The entity assumption refers to economic, rather than legal, entities.

economic entity assumption

Definitions of the items that make up any theoretical structure. For accounting, there are ten basic accounting elements: assets, liabilities, equity, investments by owners, distributions to owners, comprehensive income, revenues, expenses, gains, and losses. These terms constitute the language of business and accounting.

elements, basic

The view that companies are distinct and separate from their owners (present shareholders).

entity perspective

A happening of consequence, which generally is the source or cause of changes in assets, liabilities, and equity. Events may be external or internal.

event

Accounting principle that dictates that the recognition of expenses is related to net changes in assets and earning revenues, that is, "let the expense follow the revenues."

expense recognition principle

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

fair value

The choice allowed by the FASB to use fair value in the financial statements as the basis of measurement for financial assets and liabilities. Under the fair value option, the item is recorded at fair value at each reporting date, and unrealized holding gains or losses are reported as part of net income.

fair value option

GAAP-based principle that calls for the use of fair value measurements in the financial statements.

fair value principle

One of the qualitative characteristics of accounting information. To be a faithful representation, information must be complete, free from error, and neutral.

faithful representation

Reporting of financial information other than in formal financial statements. Examples include the president's letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management's forecasts, and social or environmental impact statements.

financial reporting

The principal means through which a company communicates its financial information. These statements reflect the collection, tabulation, and final summarization of the accounting data. The statements most frequently provided are (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners' or stockholders' equity. Note disclosures are an integral part of a company's financial statements.

financial statements

The structured means of communicating financial information, through the balance sheet, income statement, statement of cash flows, and statement of owners' equity.

financial statements

View that information that is accurate will be more representationally faithful.

free from error

Accounting principle that dictates that in deciding what information to report, companies follow the general practice of providing information that is of sufficient importance to influence the judgment and decisions of an informed user. It recognizes that the nature and amount of information included in financial reports reflects a series of judgmental trade-offs between sufficient detail that makes a difference to users, sufficient condensation to make the information understandable, and the costs and benefits of providing the information.

full disclosure principle

A complete record of a company's transactions or other financial events, listed chronologically and expressed in terms of debits and credits made to accounts

general journal

A list of all of a company's asset, liability, stockholders' equity, revenue, and expense accounts.

general ledger

The format for providing information to decision-makers at the least cost.

general-purpose financial reporting

A means of providing financial reporting information to a wide variety of users at the least cost.

general-purpose financial statements

The common set of accounting standards and procedures, for which either an authoritative accounting rule-making body has established a principle of reporting in a given area, or over time, a given practice has been accepted as appropriate because of its universal application

generally accepted accounting principles (GAAP)

Accounting assumption that a company will continue in operation for the foreseeable future. Only in situations in which liquidation appears imminent is the assumption inapplicable.

going concern assumption

An accepted accounting principle that companies account for and report most assets and liabilities on the basis of acquisition price. To the extent that historical cost is free from error and neutral, it contributes to faithful representation.

historical cost principle

Financial statement that measures the results of operations during a particular period and presents those results in terms of net income or net loss.

income statement

Statements issued by the FASB that modify or extend existing standards.

interpretations

The "book of original entry" where the company initially records transactions and selected other events. The company transfers that information from the journal to the ledger.

journal

The process of entering transaction data in the journal.

journalizing

The book (or computer printouts) containing the accounts. A general ledger is a collection of all of the asset, liability, owners' (stockholders') equity, revenue, and expense accounts. A subsidiary ledger contains the details related to a given general ledger account.

ledger

Accounting principle that dictates that efforts (expenses) be matched with accomplishment (revenues) whenever it is reasonable and practicable to do so. This linking of expense recognition to revenue recognition is popularly expressed as, "Let the expense follow the revenues."

matching principle

A company-specific aspect of relevance, an item is said to be material if its inclusion or omission would influence or change the judgment of a reasonable person; it is immaterial, and therefore irrelevant, if it would have no impact on a decision-maker. The point involved is one of relative size and importance; that is, both quantitative and qualitative factors should be considered.

materiality

A mixture of the accrual basis and cash basis, with modifications that have substantial support, such as capitalizing and depreciating plant assets or recording inventory.

modified cash basis

Accounting assumption that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis.

monetary unit assumption

One of the ingredients of the fundamental quality of faithful representation, neutrality indicates that a company cannot select information to favor one set of interested parties over another. Unbiased information must be the overriding consideration.

neutrality

Revenue, expense, and dividend accounts; except for dividends, these accounts appear on the income statement. Companies close nominal accounts, also called temporary accounts, at the end of the accounting period.

nominal accounts

A set of disclosures in a company's financial statements that further explain the items presented in the main body of the statements. The additional information provided in the notes does not have to be quantifiable, nor does it need to qualify as an accounting element. Notes to the financial statements are considered an integral part of the statements.

notes to financial statement

Goal for financial accounting and reporting, established by the accounting profession, which is to provide information about the reporting entity that is useful to present and potential to equity investors, lenders, and other creditors in decisions about providing resources to the entity.

objective of financial reporting

Costs that attach to a specific accounting period. Examples are officers' salaries and other administrative expenses. Companies charge off such period costs in the immediate period, even though benefits associated with these costs may occur in the future. Period costs are not included as part of inventory cost; instead, they are expensed as incurred.

period costs

periodicity (time period) assumption Accounting assumption that implies that a company can divide its economic activities into artificial time periods. These time periods vary, but the most common are monthly, quarterly, and yearly.

periodicity (time period) assumption

The trial balance after closing entries are made; consists only of asset, liability, and owners' equity accounts (the real accounts).

post-closing trial balance

The process of transferring the essential facts and figures from the book of original entry (the journal) to the ledger accounts, using debits and credits made to accounts.

posting

One characteristic of relevant information, indicating that information must help users predict the ultimate outcome of past, present, and future events.

predictive value

Assets paid for and recorded before a company uses them. Prepaid expenses expire either with the passage of time (e.g., rent and insurance) or through use and consumption (e.g., supplies). Companies typically recognize prepaid expenses by making adjusting entries to record the expenses that apply to the current accounting period and to show the unexpired costs in the asset accounts.

prepaid expenses

One of the parts in the third level of the conceptual framework, which details recognition and measurement concepts. The accounting profession generally uses four basic principles of accounting to record transactions: (1) measurement, (2) revenue recognition, (3) expense recognition, and (4) full disclosure.

principles of accounting

Costs that attach to a specific product. Examples are material, labor, and overhead. Companies carry product costs into future periods if they recognize the revenue from the product in subsequent periods.

product costs

The convention in accounting that dictates that when in doubt, choose the solution that will be least likely to overstate assets and income. The conceptual framework indicates that prudence or conservatism is generally in conflict with quality of neutrality, because being prudent or conservative can lead to bias in the reported financial position and financial performance.

prudence

Part of the second level of the conceptual framework of accounting; the characteristics of accounting information that distinguish better (more useful) information from inferior (less useful) information for decision-making purposes. The primary qualitative characteristics are relevance and faithful representation.

qualitative characteristics

Asset, liability, and equity accounts; these accounts appear on the balance sheet. Companies do not close real accounts, also called permanent accounts.

real accounts

relevance One of the qualitative characteristics of accounting information, which describes information capable of making a difference in a decision. Information with no bearing on a decision is irrelevant. To be relevant, information needs have predictive or feedback value and is material.

relevance

One of the basic principles of accounting, which dictates that companies recognize revenue in the accounting period in which the performance obligation is satisfied. Generally, recognition at the time of sale provides a uniform and reasonable test.

revenue recognition principle

Companies record only when they receive cash, and they record expenses only when they disburse cash.

strict cash basis

Information included in the notes to financial statements, which includes details or amounts that present a different perspective from that adopted in the financial statements. It may be quantifiable information that is high in relevance but low in reliability and may include management's explanation of the financial information and its discussion of the significance of that information.

supplementary information

An enhancing qualitative characteristic of accounting information, indicating that information should be available to decision-makers before it loses its capacity to influence their decisions.

timeliness

An enhancing qualitative characteristic of accounting information that lets reasonably informed users see its significance.

understandability

An enhancing qualitative characteristic of accounting information, indicating that similar results will occur when independent third parties (e.g., auditors) measure using the same methods.

verifiability

An informal device for accumulating and sorting information needed for the financial statements. The worksheet typically provides columns for the first trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. Completing the worksheet provides considerable assurance that a company properly handled all of the details related to the end-of-period accounting and statement preparation.

worksheet

Issued by the FASB, these provide interpretive guidance and also minor amendments to standards and interpretations.

FASB Staff Positions

The major organization of the standard-setting structure for financial accounting. Its mission is to establish and improve standards of financial accounting and reporting for the guidance and education of the public. The FASB consists of seven members, appointed for five-year terms by the Financial Accounting Foundation. Accounting guidance issued by the FASB is considered generally accepted accounting principles (GAAP).

Financial Accounting Standards Board (FASB)

Developed by the FASB, it provides in one place all the authoritative literature related to a particular topic.

Financial Accounting Standards Board Accounting Standards Codification (Codification)

An online, real-time database that provides easy access to the Codification, through a topically organized structure, subdivided into topics, subtopics, sections, and paragraphs, using a numerical index system.

Financial Accounting Standards Board Codification Research System (CRS)

The accounting process that culminates in the preparation of financial reports for use by both internal and external parties.

Financial accounting