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is a financial information system that tracks and records and organization's business transactions and aggregates them into reports for decision makers both inside and outside the business.

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Financial Accounting

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an event that has consequences for a business' financial condition. (the event could be external or internal)

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Transaction

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Each business transaction is related to one of these types of activities

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Operating, Investing, and Financial

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transactions are formally recorded in a database called a __________________ and then organized into a _______________.

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Journal, ledger

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The most common financial accounting reports are the

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balance sheet, income statement, and the statement of cash flows

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are used by decision makers inside and outside the business.

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Financial statements

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this tells us when and how to measure, record, and classify business transactions and aggregate them into financial reports.

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financial reporting concepts and principles

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provide information that is consistent over time and across different businesses.

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financial reporting systems

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are independent parties who periodically examine a company's financial statements and the systems, internal controls and records used to produce statements.

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auditors

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is an information feedback loop between users of financial statements and the decision makers within the organization.

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the financial reporting system

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details the sources and uses of cash by the entity over an accounting period.

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statement of cash flows

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are those activities that are related to the delivery of goods and services.

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operating activities

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are those activities that are related to the purchase and sale of long-lived assets.

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Investing activities

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relate to borrowing or retiring debt and to increase or decrease owner's equity.

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Financial activities

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details the entity's operating performance during a specific period of time. (an accounting period)

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income statement

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lists the revenues earned and expenses incurred during the period; subtracting expenses from revenues results in the measurement of net income for the period.

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The income statement

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is the sum of economic benefits the entity has earned during the accounting period in exchange for the goods and services it has provided to its customers.

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Sales (Sales Revenue or Revenue)

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are the assets used or liabilities incurred by the entity during an accounting period to provide the goods and services that generated revenue during the period.

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Expenses

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is the difference between sales and expenses of the accounting period.

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Net Income ( Profit, or net profit)

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net income or profit (net profit) is also referred to as this because it appears on the last line of the income statement.

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Bottom Line

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presents the balances of the various asset, liability, and owner's equity accounts

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Balance Sheet

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A balance sheet is prepared

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for a point in time

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An income statement is prepared

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to cover an accounting period

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A statement of cash flow is prepared

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to cover an accounting period

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Cash held by a business would best be listed as _________ on the balance sheet

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an asset

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a bank loan taken by the business would be listed as

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a liability

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Purchase or sale of building

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investing

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Raising cash from investors

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financing

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Selling products and services

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operating

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Financial Accounting Standards Board (FASB)

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sets accounting standards

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accounts are kept for an entity as distinct from the people who own, rune or do business with the entity.

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entity concept

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financial accounting deals only with things that can be represented in monetary terms.

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money measurement concept

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an entity is expected to remain in operation for the indefinite future.

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Going Concern Concept

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an entity should use the same accounting methods and procedures from period to period unless it has a sound reason to change methods.

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Consistency Concept

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an entity need only apply proper accounting to items that are material

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Materiality Concept

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Any organization that needs to keep and communicate financial records can be

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an accounting entity

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refers to the timeliness and usefulness of the information to its users

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Relevance

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refers to the objectivity and verifiability of the information

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Reliability

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____________is generally given precedence over ______________

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reliability, relevance

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Since financial accounting reports are used to make decisions that affect the entity, financial accounting strives to present information about the entity that is __________ and _________.

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relevant, reliable

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focuses on the economic characteristics of transactions rather than their cash flows

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Accrual accounting

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When applied consistently, __________________ is a means of enhancing the relevance of financial statements

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accrual accounting

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are guidelines that accountants, managers and auditors must follow while preparing and auditing accounting information for external reporting purposes.

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Generally Accepted Accounting Principles (GAAP)

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requires the use of accrual accounting

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GAAP

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tends to be stated as in the form of broad principles

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IFRS

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tends to be stated in the form of bright-line rule

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GAAP

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statement of financial position

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balance sheet

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a snapshot at a specific point in time, of the resources controlled by an entity (assets), the claims against those resources (liabilities), and the owners' residual interest in the entity (owners' equity)

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balance sheet

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- Acquired at measurable cost - Obtained or controlled - Expected future economic benefits - Past transaction or event

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asset

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assets having physical substance

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Tangible assets

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assets that lack physical substance

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Intangible assets

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cash and those assets that are expected to be converted into cash or consumed within 12 months of the balance sheet date

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Current assets

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assets that are expected to provide economic benefits for periods longer than a year.

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Non-current assets

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money owed by customers

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accounts receivable

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goods available for sale

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merchandise inventory

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rent paid in advance for the store

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prepaid expenses

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reduces the recorded value of an asset

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accumulated depreciation

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an asset that is expected to provide economic benefits for three years and does not have physical substance is a

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non-current intangible asset

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represents an obligations of the entity to other parties

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liability

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-a probable future sacrifice of economic resources by entity - economic resource transfer is to another entity - future sacrifice is a present obligation, arising from a past transaction or event

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liability

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obligations that are expected to become due within 12 months of the balance sheet date

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Current liabilities

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obligations that are expected to become due more than 12 months past the balance sheet date.

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Non-current liabilities

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money owed to suppliers who will be paid during the coming year

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accounts payable

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money potentially owed to the tax authorities

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taxes payable

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a loan that must pay back within a year of the balance sheet date

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short-term debt

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money owed to a bank, with payments to be made for more than 12 months from the balance sheet date.

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mortgage payable

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amount remaining after liabilities are deducted from assets

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Owners' Equity

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always equal to total liabilities plus owners' equit

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total assets

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relationship between assets and liabilities plus owners' equity

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fundamental accounting equation

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economic resources obtained or controlled by the entity

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Assets

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financing sources for those resources or assets

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Liabilities and owners' equity

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formalizes the idea that there are two sides to every accounting transaction

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dual-aspect concept

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every accounting transaction has two sides which must be recorded

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dual-aspect concept

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It requires that transactions be recorded in terms of their actual price or cost at the time the transaction occurred.

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historical cost concept (cost concept)

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relevance

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market cost

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reliability

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historical cost

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