Accounting Chapter 1
income statement
a financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. AKA statement of operations
expenses
decrease in retained earnings that results from operations. The cost of doing business opposite of revenue.
net income
excess of total expenses over total revenues
Long term assets will be
held longer than one year.
going-concern assumption
holds that the entity wil remain in operation for the forseeable future
What is retained earnings?
portion of the net income that the company has kept
historic cost principle
principle that states that assets should be recorded at their actual cost
investing activities
purchasing and selling long term assets
paid-in capital
the amount of stockholders equity that stockholders have contributed to the corporation
Net Income or Net losses flows from.....
the income statements to the statement of related earnings.
4 Statements accountants have to produce
1.) Income Statement 2.) Statement of Returned Earnings 3.) Cash Flow Statements 4.) Balance Sheet
limited liability company
A business organization in which the business is liable for the companies debts
long term assets
Assets that are expected to benefit the entity for long periods of time, beyond the end of the next fiscal year. These usually include investments, property, and equipment, and intangible assets
Amortization
Allocation of the cost of an intangible asset to expense over its useful life
Current asset
An asset that is expected to be converted to cash, sold, or consumed, during the next 12 months or w/in the business's normal operating cycle if its longer than one year
Liability
An economic obligation (debt) payable to an individual or an organization
Asset
An economic resource that is expected to be of benefit in the future
Entity
An organization or a section of an organisms that stands apart from other organizations and individuals as a separate economic unit
net earnings
Another name for net income
Capital
Another name for the owners equity of a business
Accounting equation
Assets = Liabilities + Owners Equity
Balance sheet ... =
Assets = Liabilities + Stockholders Equity
What does the balance sheet report?
Assets, Liabilities, Stakeholders Equity
Stockholders equity on the balance sheet
Represents stockholders ownership of the business assets -consists of common stock -additional paid in capital - retained earnings
The income statement shows the _________ ?
Bottom line
Financial statements
Business documents that report financial information about a business entity to decision makers
Statement of retained earnings
Ending RE= Beginning RE + NI - D
Current assets
Expected to be converted to cash. Sold or consumed in the next year w/in the business operating cycle.
What does accumulated deficit indicate?
Expenses exceed revenue
Corporation
Owned by stockholders.
Financial accounting
Provides info to people outside the firm
NI
R-E
statement of cash flows
Reports cash receipts and cash payments classified according to the entity's major activity: operating, investing, and financing
Net income =
Revenue - Expenses
What does the Income Statement Report?
Revenues (gains) & Expenses (loses)
What does positive balance indicate?
Revenues exceeded expenses
cash spent to acquire a building
Statement of Cash Flows
Another name for Income Statement
Statement of Operations
What is another name for the balance sheet?
Statement of financial position.
Ending balance of retained earnings
Statement of retained earnings and balance sheets and balance shet
Dividends---
Statement of return earnings
retained earnings
The amount of stockholders equity that the corporation has earned through profitable operations and has not given back to stockholders.
fair value
The amount that a business could sell an asset for, or the amount that a business could pay to settle liability
owners equity
The claim of the owners of a business to the assests of the business to the assets of the business. AKA capital, stockholders equity, or net assets.
goodwill
The excess off cost of an acquired company over the sum of the market value of its net assets
Accounting
The information system that measures business activities, processes that information into reports and financial statements and communicate the results to decision makers
Consolidation
The method of accounting used for multiple entities that are under common ownership.
What is the most important item in the financial statements?
The net income
Accounting cycle
The process by which financial statements are prepared
stable-monetary-unit assumption
The reason for ignoring the effect of inflation in the accepting records, based on the assumption that the dollar's purchasing power is relatively stable.
FASB
The regulatory body in the United States that formulates generally accepted accounting principles
stockholder's equity
The stockholders' ownership interest in the assets of a corporation.
The income statement, statement of retained earnings, and the statemet of cash flows are
dated for a period of time
The balance sheet is
dated for the exact time
Partnership
-2 or more parties as co-owners -Not a taxpaying entity -Governed by an agreement -Mutual agency ( either person can act on behalf of the entity ) -Unlimited liability -Involve risk
Current assets include....
-Cash -Short term investments -accounts & notes receivable -inventory -prepaid expense
Who uses accounting information?
-Individuals -Investors & creditors -Regulatory bodies -Nonprofit Organizations
What do accountants do?
-Measures business activities -processes data into reports -Communicates results -Produces financial statements
Limited Liability Companies
-One or many owners -Like a partnership, not a taxpaying entity -Income flows through its members - Popular form of business due to combinations of tax status & limited liability
Corporations
-Owned by stockholders -Stock represents share of ownership -Ability to raise large share of capital -Larger than proprietorship and partnerships -Formed under state -legally distinct from its owners -Double taxation -Corporate income is taxed -Stockholders taxed on distributions of earnings -Stockholders elect board of directors
Long term assets include
-Property -Plant -Equipment Land, buildings, computers, equipment -Intangibles
Financial Accountants
-Provide information for external users -Investors -Creditors -Government -The public
Managerial Accountants
-Provides information to internal users Includes... -Budgets -Forecasts
Proprietorship
-Single owner -Common business form for small retail stores and professional service providers - Personally liable for business debts
Statement of cash flows
-measures cash receipts and cash payments -4th required financial statement -operating -investing -financing
The time period that disquinshes current and long term assets and liability is
1 year
Current Liability
A debt due to be paid within one year.
segment
A division or subset of a business's operations
stockholder
A person who owns stock in a corporation. AKA shareholder
net profit
AKA net income
shareholder
AKA stockholders
International financial reporting standards
Accounting guidelines formulated by the international accounting standards board.
Generally accepted accounting principles
Accounting guidelines, formulated by the financial accounting standards board, that govern how accounting is practiced
investing activities
Activities that increase or decrease the long term assets available to the business.
Financing activities
Activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows.
Common Stock-------
Balance Sheets
Income tax payable----
Balance Sheets
Current Liabilities
Debts Payable in the next year or w/ the business cycle include... -Accounts payable -income taxes payable -Accured expenses
Long term liabilities
Debts payable more than one year from the balance sheet date include... -long term notes payable -bonds payable
Dividends
Distributions by corporations to its stockholders.
Board of Directions
Group elected by the stockholders to set policy for a corporation and to appoint its officers.
Income tax expense
Income Statement
revenue
Income Statement
revenues
Increase in retained earnings from delivering goods or services to customers or clients
Balance Sheet
List of entity's assets, liabilities and owners equity as part of a specific date. Also called the statement of financial position.
Equity method
Method of accounting required for investments where 20 to 50 percent of voting interest is owned.
Deficit
Negative balance in retained earnings caused by net losses.
operating activities
activities that create revenue or expense in the statement of cash flows operating activities affect the income statement
statement of financial position
another name for the balance sheet
statement of operations
another name for the income statement
intangible assets
assets with no tangible form that represents resources that have a value and future benefit
long term debt
balance sheet
total assets
balance sheet
management account
branch of accounting that generates information for the internal decision makers of a business such as top executives
Dividends Represents
cash paid by the business but are not considered an expense in running the business. Therefore, dividends are not included on the incomes statement, rather they are included considered a distribution of net income in the statement of retained earnings.
operating activities
cash receipts and payments from selling goods and services
non-controlling interests
interests in consolitdated entities that are more than 50 percent but less than 100 percent owned
financing activities
issuing stock and borrowing
gross profit
revenue from a particular activity minus the direct costs associated with earning that revenue
stock
shares into which the owners equity of a corporation is divided.