MQM 223 Chapter 12

Asset

Something the business owns that is expected to have economic value in the future

Going concern concept

The accounting concept that a business is expected to continue in existence for the foreseeable future.

Financial Accounting

A formal, rule-based set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators.

Retained Earnings

(1) The sum of all the profits and losses that the business experiences from formation. (2) A balance sheet item in owners' equity that reflects the wealth created by the business from its formation

Expense

A decrease in owners' equity caused by consuming your product or service

Statement of cash flows

A statement of the sources and uses of cash in a business for a specific period of time. Also called a cash flow statement

Balance Sheet

A statement of what a business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity)

Income statement

A statement that lists revenues and expenses and shows the amount of profit a business makes for a specified period of time

MACRs Rate

An Internal Revenue Service acronym for the Modified Accelerated Cost Recovery System. The MACRS approach lets taxpayers depreciate more of the cost earlier in the life of a capital expense

Cost of Goods Sold

An expense recognized at the time of a sale of merchandise in the amount of the cost of the merchandise to the seller

Revenue

An increase in owners' equity caused by selling your product or service

Financial statement

Formal summaries of the content of an accounting system's records of transactions

Account

In terms of accounting practice, an account is a chronological list of all additions to and subtractions from a single type of asset (e.g., cash, receivables, loans outstanding)

Liabilities

Legal obligations to give up things of value in the future

On account

Merchandise purchased or sold with payment due in the future, usually within one month

Depreciation

Regular and systematic reduction in income that transfers asset value to expense over time

Business entity concept

The concept that a business has an existence separate from that of its owners

Owners Equity

The difference between assets and liabilities of a business

General Accepted Accounting Principles (GAAP)

The standardized rules for accounting procedures set out by the Financial Accounting Standards Board and used in all audits and submissions of accounting reports to the government.

Accounting equation

The statement that assets equal liabilities plus owners' equity (Assets = Liabilities + Owners' Equity)

Permanent Accounts

The accounts of assets, liabilities, and owners' equity, excluding accounts for revenues and expenses