Accounting 211 Test 1 (chapters 1-4) – Flashcards
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Financial accounting
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providing information about the financial resources, obligations and activities of an economic entity that is intended for use primarily by external decision makers, investors and creditors
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Generally Accepted accounting principles (GAAP)
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principles that provide the framework for determining what information is to be included in financial statements and how that information is to be presented. Important because it keeps business honest and on the same playing field.
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General-purpose assumption/information
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information that is intended to meet the needs of multiple users that have an interest in the financial activities of an enterprise rather than tailored to the specific information needs of one user.
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Return of investment vs. return on investment
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Return OF investment= the repayment of an investor of the amount originally invested in another enterprise Return ON investment= the payment of an amount (interest, dividends) for using another's money
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Assets
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economic resources owned by an entity
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Liabilities
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debts or obligations of an entity that resulted from past transactions
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Owner's Equity
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the excess of assets over liabilities. the amount of the owners investment in the business, plus profits from successful operations that have been retained from the business
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Revenues
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increases in the enterprise's assets as a result of profit-oriented activities
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Expenses
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past, present or future reductions in cash required to generate revenues
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Retained earnings
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the portion of stockholder's equity that has accumulated as a result of profitable operations
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Accrual basis of accounting
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calls for recording revenue in the period in which it is earned and recording expenses in the period in which they are incurred.
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Cost principle
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Recording at the exact cash amount
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going-concern assumption
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an assumption by accountants that a business will operate in the foreseeable future
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stable-dollar assumption
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money is stable over time
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business entity concept
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business is separate from personal affairs of the owners and creditors
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trial balance
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Makes sure that your debits and credits balance
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Adjustment process
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make sure that companies are staying honest and up to date asset-expense liability to payable unpaid expense uncollected revenue
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matching principle
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recording expenses in the same period in which they are incurred
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realization principle
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revenue should be recognized at the time goods are sold or services are rendered
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objectivity
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verifiable measurements of dollar amounts
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book value
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the net amount that an asset appears in an account. depreciation assets
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contra-asset account
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a credit account that offsets an asset account to make it balance on a balance sheet
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materiality
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the relative importance of an item, whether or not it is large enough to influence decision making
