ACCT 042 Final
Corporation
A business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock is a corporation.
Proprietorship
A business owned by one person is generally a proprietorship.
Partnership
A business owned by two or more persons associated as partners is a partnership.
Account
An account is an individual accounting record of increases and decreases in a specific asset, liability, or stockholders' equity item.
Income Statement
An income statement presents the revenues and expenses and resulting net income or net loss for a specific period of time.
Basic Accounting Equation
Assets = Liabilities + Stockholders' Equity
Assets
Assets are resources owned by a business. They are used in carrying out such activities as production and sales. All assets have the capacity to produce future benefits.
Current Assets
Assets that a company expects to convert to cash or use up within one year of the balance sheet date or the company's operating cycle, whichever is longer.
Property, Plant, and Equipment
Assets with relatively long useful lives that a company is currently using in operating the business.
Common Stock
Common stock is the term used to describe the total amount paid in by stockholders for the shares they purchase.
General Ledger
Contains all the assets, liabilities, and stockholder's equity accounts.
Historical Cost Principle
Dictates that companies record assets at their cost at the time the assets were purchased.
Dividends
Dividends are the distribution of cash or other assets to stockholders. Dividends reduce retained earnings but dividends are not an expense.
Transactions
Events that must be recorded in the financial statements.
Expenses
Expenses are the decreases in stockholders' equity that result from operating the business. They are the cost of assets consumed or services used in the process of generating revenue.
Fair Value Principle
Indicates that assets and liabilities should be reported at fair value. Fair value is the price received to sell an asset or settle a liability.
Deferrals
Prepaid expenses or unearned revenues.
Sarbanes-Oxley Act (SOX) of 2002
Requires top management to certify accuracy of financial information, severe penalties for fraudulent financial activity, increased independence of auditors., increased responsibility for board of directors.
Credit
Right
Accumulated Depreciation Account
Shows the total amount of depreciation that the company has expensed thus far in the asset's life.
FASB
The Financial Accounting Standards Board (FASB) is the primary accounting standard-setting body in the United States.
IASB
The International Accounting Standards Board (IASB) issues international reporting standards (IFRS) that have been adopted by many countries outside the United States.
SEC
The Securities and Exchange Commission (SEC) is the agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.
Fiscal Year
The accounting time period of one year in length.
Depreciation
The allocation of the cost of an asset to expense over its useful life in a rational and systematic manner.
Ledger
The entire group of accounts maintained by a company.
Expense Recognition Principle
The expense recognition principle requires that companies recognize expenses in the period when they make efforts (consume assets or incur liabilities) to generate revenue.
Stockholders' Equity
The ownership claim on total assets is known as stockholders' equity. The stockholder's equity section of a corporation's balance sheet consists of common stock and retained earnings.
Retained Earnings
The retained earnings section of the balance sheet is determined by three items: revenues, expenses, and dividends.
Revenue Recognition Principle
The revenue recognition principle requires that companies record revenue in the period in which the performance obligation is satisfied.
Time Period Assumption
The time period (or periodicity) assumption assumes that the economic life of a business can be divided into artificial time periods.
Posting
Transferring journal entries to the ledger accounts.
Accrual Basis Accounting
Under accrual basis accounting, transactions that change a company's financial statements are recorded in the periods in which the events occur.
Cash Basis Accounting
Under cash basis accounting, revenue is recorded when cash is received, and expenses are recorded when cash is paid.
Compound Entry
When three or more accounts are required in one journal entry.
Cash Flow Statement
A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time.
Accounting
Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users.
Accruals
Accrued revenues or accrued expenses.
Economic Entity Assumption
Activities of one entity be kept separate and distinct from all others.
Simple Entry
If an entry involves only two accounts, one debit and one credit.
Double-Entry System
In a double-entry system, equal debits and credits are made in the accounts for each transaction. Thus, the total debits will always equal the total credits, and the accounting equation will always stay in balance.
Intangible Assets
Noncurrent resources that do not have physical substance.
Balance Sheet
A balance sheet reports the assets, liabilities, and stockholders' equity of a business enterprise at a specific date.
Trial Balance
A list of accounts and their balances at a given time. The primary purpose of a trial balance is to prove (check) that the debits equal the credits after posting. If the debits and credits do not agree, the trial balance can be used to uncover errors in journalizing and posting.
Retained Earnings Statement
A retained earnings statement summarizes the changes in retained earnings for a specific period of time.
GAAP
Generally Accepted Accounting Principles
Bookkeeping
Involves only the recording of economic events.
Debit
Left
Liabilities
Liabilities are claims against assets. They are existing debts and obligations.
Long-Term Assets
Long-term investments are generally investments in stocks and bonds of other companies that are normally held for many years, long-term assets such as land or buildings that a company is not currently using in its operating activities, and long-term notes receivable.
Long-Term Liabilities
Obligations expected to be paid after one year.
Current Liabilities
Obligations that the company is to pay within the coming year or its operating cycle, whichever is longer.
Monetary Unit Assumption
Only transaction data that can be expressed in terms of money is included in the accounting record.