Intro to Financial Accounting (Rutgers) chapter 1

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Accounting
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The information system that identifies, records, and communicates the economic events of an organization to interested users
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Assets
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Resources a business owns
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Balance sheet
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A financial statement that reports the assets, liabilities, and stockholders’ equity at a specific date
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Basic accounting equation
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Assets = Liabilities + Stockholders’ Equity
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Bookkeeping
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A part of accounting that involves only the recording of economic events
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Common Stock
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Term used to describe the total amount paid in by stockholders for the shares they purchase
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Convergence
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The process of reducing the differences between U.S. GAAP and IFRS
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Corporation
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A business organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock
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Dividend
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A distribution by a corporation to its stockholders
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Economic entity assumption
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An assumption that requires that the activities of the entity by kept separate and distinct from the activities of its owner and all other economic entities
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Ethics
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The standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair
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Expanded accounting equation
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Assets = Liabilities + Common Stock + Revenues – Expenses – Dividends
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Expenses
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The cost of assets consumed or services used in the process of earning revenue
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Fair value principle
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An accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)
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Faithful representation
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Numbers and descriptions match what really existed or happened–the are factual
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Financial accounting
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The field of accounting that provides economic and financial information for investors, creditors, and other external users
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Financial Accounting Standards Board (FASB)
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A private organization that establishes generally accepted accounting principles in the US
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Generally Accepted Accounting Principles (GAAP)
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Common standards that indicate how to report economic events
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Historical cost principle
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An accounting principle that states that companies should record assets at their cost
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Income Statement
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A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time
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International Accounting Standards Board (IASB)
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An accounting standard-setting body that issues standards adopted by many countries outside of the United States
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International Financial Reporting Standards (IFRS)
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International accounting standards set by the IASB
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Liabilities
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Creditor claims against total assets
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Managerial accounting
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The field of accounting that provides internal reports to help users make decisions about their companies
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Monetary unit assumption
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An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money
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Net income
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The amount by which revenues exceed expenses
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Net loss
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The amount by which expenses exceed revenues
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Partnership
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A business owned by two or more persons associated as partners
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Proprietorship
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A business owned by one person
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Relevance
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Financial information that is capable of making a difference in a decision
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Retained earnings statement
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A financial statement that summarizes the changes in retained earnings for a specific period of time
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Sarbanes-Oxley Act (SOX)
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Law passed by Congress intended to reduce unethical corporate behavior
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Securities and Exchange Commission (SEC)
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A governmental agency that oversees US financial markets and accounting standard-setting bodies
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Statement of cash flows
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A financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time
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Stockholders’ equity
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The ownership claim on a corporation’s total assets
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Transactions
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The economic events of a business that are recorded by accountants

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