Chapter 1

Matching Principle (Expense Recognition)

A company records the expenses incurred to generate the revenues reported

Full Disclosure Principle

A company reports details behind financial statements that would impact users' decisions

Public Accountants

Accounting professionals who provide services to many clients

Net Income

Amount a business earns in excess of all expenses and costs associated with its sales and revenues

Tax Accounting

An accounting area that includes planning future transactions to minimize taxes paid

Audit

An examination of an organizations accounting system and records that adds credibility to financial statements

What is the accounting equation?

Assets = Liabilities + Equity

Which financial statement is for a specific date such as "December 31, 2016" and NOT for a specific time period ending on a date such as "For the Year Ending December 31, 2016" ?

Balance Sheet

General accounting principle

Derived from long-used and generally accepted accounting practices.

The owner's claim on the assets of a business is called?

Equity

Business Entity

Every business is accounted for separately from its owner or owners

Going Concern Assumption

Financial statements reflect the assumption that the business continues operating

What are the the concepts and rules that govern financial accounting called?

Generally accepted accounting principles

Which financial statement must a company prepare first?

Income Statement

Cost principle

Information is based on actual costs incurred in transactions

Who issues the International Financial Reporting Standards (IFRS)?

International Accounting Standards Board

Accounting is best described as the

Language of business

Ethics

Principles that determine whether an action is right or wrong

Revenue Recognition Principle

Revenue is recorded only when the earnings process is complete

Which law requires public companies to document and verify their internal controls?

Sarbanes - Oxley Act

If a company provides services for cash, what happens to their total assets and total equity?

Total assets increase and total equity increase

When a company collects an account receivable for a sale it had previously made on credit, what happens to their total assets?

Total assets remain the same

Specific Accounting principle

Usually created by a pronouncement from an authoritative body