Financial Accounting Fundamentals Chapter 1 (John J. Wild 4th Ed) – Flashcards
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IBC Services does not have separate legal existance apart from the one person who owns it.
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Sole proprietorship
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Physio Products does not pay income taxes and has one owner.
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Sole proprietorship
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AJ pays its own taxes and has two owners.
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Corporation
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Usually created by a pronouncement from an authoritative body.
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Specific accounting principle
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Financial statements reflect the assumption that the business continues operating.
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Going-concern assumption
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Derived from a long-used and generally accepted accounting practices.
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General accounting principle
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Every business is accounted for separately from its owner or owners.
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Business entity assumption
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Revenue is recorded only when the earnings process is complete.
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Revenue recognition principle
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Information is based on actual costs incurred in transactions.
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Cost principle
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A company records the expenses incurred to generate the revenues reported.
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Matching principle
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A company reports details behind financial statements that would impact users' decisions.
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Full disclosure principle
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General Accepted Accounting Procedures (GAAP)
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Rules that specify acceptable accounting procedures
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Securities and Exchange Comission (SEC)
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Is charged by Congress to set reporting rules for organizations that sell ownership shares to the public
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Financial Accounting Standards Board (FASB)
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Independent of full-time members who are responsible for setting accounting rules
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International Accounting Standards Boad (IASB)
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Issue standards that identify preferred practices in the desire of harmonizing accoutning practices across different contries
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International Financial Reporting Standards (IFRS)
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A global set of accounting standards issues by the IASB
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Customers
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External
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Suppliers
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External
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Brokers
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External
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Business Press
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External
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Managers
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Internal
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District attorneys
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External
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Shareholders
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External
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Lenders
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External
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Controllers
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Internal
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FBI and IRS
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External
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Consumer group
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External
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Sales staff
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Internal
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In December 2012, Chavez Landscaping received a customer's order and cash prepayment to install sod at a new house that would not be ready for installation until March 2013. Chavez should record the revenue from the customer order in March 2013, not in December 2012.
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Revenue recognition principle
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If $51,000 cash is paid to buy land, the land is reported on the buyer's balance sheet at $51,000.
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Cost principle or historical cost
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Jo Kennen ownes both Sailing Passions and Dockside Suplies. In preparing financial statements for Dockside Supplies, Keene makes sure that the expense transactions of Sailing Passions are kept separate from Dockside's transactions and financial statements.
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Business entity assumption
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