BA 215 Ch1 – Flashcards
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Describe eight accounting concepts underlying financial reporting.
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The eight accounting concepts discussed in this chapter include the business entity, cost, going concern, matching, objectivity, unit of measure, adequate disclosure, and accounting period concepts.
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Accounting
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An information system that provides reports to stakeholders about the economic activities and condition of a business.
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Accounting equation
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Assets=Liabilities+Stockholder's Equity
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Accounting period concept
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An accounting concept in which accounting data are recorded and summarized in a period process.
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Accounts payable
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Liabilities for amounts incurred from purchases of products or services in the normal operations of a business.
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Accounts receivable
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Receivables created by selling merchandise or services on credit.
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Adequate disclosure concept
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An accounting concept that requires financial statements to include all relevant data a reader needs to understand the financial condition and performance of a business.
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Administrative expenses
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Costs not directly related to selling, such as officer salaries.
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Assets
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The resources owned by a business.
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Balance sheet
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A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a month or year.
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Bonds payable
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A type of long-term debt financing with a face amount that is in the future with interest that is usually payed semi-annually.
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Business
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An organization in which basic resources, such as materials and labor, are assembled and processed to provide goods and services to customers.
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Business entity concept
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An accounting concept that limits the economic data in the accounting system of a specific business or entity to data related directly to that business or entity.
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Business stakeholder
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A person or entity that has an interest in the economic performance of a business.
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Capital stock
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Types of stock a corporation may issue.
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Common stock
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The basic type of stock issued to stockholders of a corporation when a corporation has issued only one class of stock.
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Corporation
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A business organized under state or federal statutes as a separate legal entity.
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Cost concept
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An accounting concept that determines the amount initially entered into the accounting records for purchases.
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Cost of goods sold
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The cost of products sold may also be referred to as cost of merchandise sold or cost of sales.
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Cost of merchandise sold
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The cost of products sold may also be referred to as cost of goods sold or cost of sales.
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Cost of sales
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The cost of products sold may also be referred to as cost of goods sold or cost of merchandise sold.
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Dividends
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Distributions of the earnings of a corporation to its stockholders.
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Expenses
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Costs used to earn revenues.
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Fees earned
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Revenues received from providing services.
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Financial accounting
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The branch of accounting which is associated with preparing reports for users external to the business.
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Financial Accounting Standards Board (FASB)
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The authoritative body that has the primary responsibility for developing accounting principles.
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Financial statements
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Financial reports that summarize the effects of events on a business.
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Financial activities
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Business activities that involve obtaining funds to begin and operate a business.
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Generally accepted accounting principles (GAAP)
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Rules for the way financial statements should be prepared.
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Going concern concept
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An accounting concept that assumes a business will continue operating for an indefinite period of time.
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Income statement
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A summary of the revenue and expenses for a specific period of time, such as a month or year.
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Intangible assets
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Long-lived assets that are useful in operations of a business, are not held for sale, and are without physical qualities.
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Interest payable
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A liability to pay interest on a due date.
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International Accounting Standards Board
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An authoritative body that establishes accounting principles and practices for companies outside of the United States.
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Investing activities
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Business activities that involve obtaining the necessary resources to start and operate the business.
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Liabilities
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The rights of creditors that represent a legal obligation to repay an amount borrowed according to terms of the borrowing agreement.
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Limited liability company (LLC)
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A form of business that combines attributes of a corporation and a partnership.
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Low-cost strategy
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A strategy in which a company designs and produces products or services at a lower cost than its competitors.
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Managerial accounting
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The branch of accounting that aids management in making financing, investing, and operating decisions for the company.
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Manufacturing businesses
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A type of business that changes basic inputs into products that are sold to individual customers.
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Matching concept
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An accounting concept that requires expenses of a period to be matched with the revenue generated during that period.
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Merchandising businesses
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Businesses that sell products they purchase from other businesses to customers.
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Net income
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The excess of revenues over expenses.
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Net loss
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The excess of expenses over revenues.
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Notes payable
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A type of short or long-term financing that requires payment of the amount borrowed plus interest.
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Objectivity concept
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An accounting concept that requires accounting records and data reported in financial statements to be based on objective evidence.
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Operating activities
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Business activities that involve using the businesses' resources to implement its business strategy.
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Owner's equity
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The financial rights of the owner.
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Partnership
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A business owned by two or more individuals.
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Premium-price strategy
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A strategy in which a company tries to design and produce products or services that serve unique market needs, allowing it to charge premium prices.
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Prepaid expenses
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Assets resulting from the pre-payment of future expenses such as insurance or rent that are expected to become expenses over time or through the normal operations of the business; often called deferred expenses.
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Profit
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The excess of the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services.
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Proprietorship
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A business owned by one individual.
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Retained earnings
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Net income retained in a corporation.
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Retained earnings statement
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A summary of changes in the retained earnings of a corporation for a specific period of time, such as a month or year.
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Revenue
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The increase in assets from selling goods or services to customers.
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Sales
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Revenues received from selling products.
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Securities and Exchange Commission
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An agency of the US government that has authority of the accounting and financial disclosures for corporations whose stock is traded and sold to the public.
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Selling expenses
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Costs directly related to the selling of a product or service such as sales, salaries, and advertising expenses.
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Service businesses
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A type of business that provides services rather than products to customers.
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Statement of cash flows
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A summary of the cash receipts and cash payments for a specific period of time, such as a month or year.
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Statement of financial condition
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Reports the financial condition as of a point in time, often referred to as the balance sheet.
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Stockholder's equity
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The stockholders rights to the assets of a business.
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Tangible assets
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Assets such as machinery, buildings, computers, office furnishings, trucks, and automobiles that have physical characteristics.
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Unit of measure concept
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An accounting concept requiring that economic data be recorded in dollars.
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A profit-making business operating as a seperate legal entity and in which ownership is divided into shares of stock is known as:
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A corporation
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The resources owned by a business are called:
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Assets
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A listing of a business entity's assets, liabilities, and stock holder's equity as of a specific date:
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Balance Sheet
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If total assets are $20,000 and total liabilities are $12,000, the amount of stockholder's equity is:
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$8,000
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If revenue was $45,000, expenses were $37,500, and dividends were $10,000, the amount of net income/loss would be:
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$7,500, net income
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What are the major objectives of financial accounting?
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to report the financial condition of a business at a point in time and to report changes in the financial condition of a business over a period of time.
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What order are financial statements prepared in?
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Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows
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The ___ concept limits the economic data recorded in an accounting system to data related to company activities.
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the business entity concept.
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____ was enacted as a result of accounting and business fraud.
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Sarbanes-Oxley Act (SOX)
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What types of financing require interest payments?
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Notes payable and bonds.
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What is the role of accounting?
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To provide information about the financing, investing, and operating activities of a company to its stakeholders.
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