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