Using Financial Accounting Information Ch. 1 – Flashcards
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partnership
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business owned by 2 or more individuals; the organization form used by accounting firms and law firms
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corporation
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form of entity organized under laws of a particular state; ownership evidenced by shares of stock
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share of stock
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certificate that acts as evidence of ownership in a corporation
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bond
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a certificate that represents a corporation's promise to repay a certain amount of money and interest in the future
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nonbusiness entity
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organization operated for some purpose other than to earn a profit; govt entities/private orgs: hospitals universities etc
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liability
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an obligation of a business
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capital stock
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indicates the owners contributions to a corporation
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stockholder
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one of the owners of a corporation aka shareholder
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creditor
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someone to whom a company or person has a debt aka lender
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asset
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future economic benefit
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revenue
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an inflow of assets resulting from the sale of goods and services
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expense
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an outflow of assets resulting from the sale of goods and services
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accounting
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the process of identifying measuring and communicating economic information to various users
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management accounting
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branch of accounting concerned w providing management with information to facilitate planning and control
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financial accounting
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branch of accounting concerned w the preparation of financial statements for outsider use
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Internal Users
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What kind of "users" are the management of a company?
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external users
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those not involved in the operations of a business; stockholders/bankers/govt agencies/
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owner's equity
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the owner's claims on the assets of an entity
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stockholder's equity
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the owner's equity in a corporation; mathematical difference between a corporation's assets and its liabilities
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retained earnings
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part of stockholders equity that represents the income earned less dividends paid over the life of an entity
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balance sheet
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financial statement that summarizes the assets, liabilities, and owners' equity at a specific point in time
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income statement
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a statement that summarizes revenues and expenses
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net income
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the excess of revenues over expenses aka profits, earning
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dividends
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a distribution of the net income of a business to its owners
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statement of retained earnings
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statement that summarizes the income earned and dividends paid over the life of a business
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statement of cash flows
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Financial statement that summarizes a company's cash receipts and cash payments during the period from operating, investing, and financing activities
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cost principle
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assets are recorded at the cost to acquire them
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going concern
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the assumption that an entity is not in the process of liquidation and that it will continue indefinitely
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monetary unit
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the yardstick used to measure amounts in finacial statements; the $ in the US
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time period
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artificial segment on the calendar used as the basis for preparing financial statements
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GAAP (Generally accepted accounting principles)
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various methods, rules, practices, and other procedures that have evolved over time in response to the need to regulate the preparation of financial statements
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SEC (securities and exchange commission)
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federal agency with ultimate authority to determine the rules for preparing statements for companies whose stock is sold to the public
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FASB (Financial Accounting Standards Board)
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group in the private sector with authority to set accounting standards
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AICPA (American Institute of Certified Public Accountants)
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the professional organization of certified public accountants
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CPA (Certified Public Accountant)
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designation for an individual who has passed a uniform exam administered by the AICPA and has met other requirements as determined by individual states
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PCAOB (Public Company Accounting Oversight Board)
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A five-member body created by an act of Congress in 2002 to set auditing standards
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IASB (International accounting standards board)
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the org formed to develop worldwide accounting standards
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auditing
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the process of examining the financial statements and the underlying records of a company to render an opinion as to whether the statements are fairly presented
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Sarbanes Oxley Act
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An act congress in 2002 intended to bring reform to corporate accountability and stewardship in the wake of a number of major corporate scandals
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Financial Activities
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Borrowing; Sale of stock (example of a type of activity)
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Investing Activities
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purchase of assets (example of a type of activity)
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Operating Activities
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sale of products/services; costs incurred to operate business (example of a type of activity)
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Basic Financial Statements
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Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings (These are examples of what?)
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Foundation for Financial Statements
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1. Aids accountants in their role as interpreters and communicators of relevant information 2. Act as a foundation for the specific principles and standards needed by the profession
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Conceptual Framework (First level)
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Objective of Financial Reporting
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Conceptual Framework (Second level)
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Qualitative Characteristics Elements
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Conceptual Framework (third level)
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Assumptions Principles Constraints
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Elements of a 10K
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1. Letter to stockholders 2. Management discussion and analysis (MD&A) 3. Financial statements 4. Notes to financial statements 5. Statement of management's responsibility 6. Report of independent accountants (These are elements of what?)
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Assets
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Thesum of liabilities and stockholders equity equals this.
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Balance Sheet
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A "snapshot" of the investing and financing activities of the firm at any given point in time. A = L + SE
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Assets
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Probable and measurable future economic benefits controlled by an entity as a result of past transactions
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Components of Assets
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1. Ownership or control 2. Measurability 3. Probability
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Liabilities
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Obligations to sacrifice reasonably definite amounts of cash or goods/services at reasonably certain times in the future, in exchange for past or current benefits.
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Shareholders' equity
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Residual interest of a firm's owners in the firm's assets, after deducting liabilities
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Market value
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Stock price multiplied by outstanding shares
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Income Statement
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A schedule that presents a "moving picture" of the operating results of the firm over a given time period
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Net Income (Found on Income Statement)
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Total Revenue - Total Expenses
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Revenue
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Inflows of assets from selling goods or providing services
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Expenses
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Outflows of assets as a result of generating revenues
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Irregular Items
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Discontinued operations Extraordinary items Changes in accounting principle
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Extraordinary Items
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1. Unusual in nature 2. Infrequent in occurrence or essentially nonrecurring
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Statement of Cash Flows
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A schedule that presents a "moving picture" of the change in cash over a given time period as a result of operating, investing, and financing activities
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Statement of Shareholders' Equity
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A schedule that reconciles the change in shareholders' equity during the period (a kind of statement)
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Statement of Comprehensive Income
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Optional schedule that augments traditional net income by including other items that have changed the shareholders' claim on assets during the period
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Statement of Retained Earnings
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A schedule that connects the related changes in the Balance Sheet and the Income Statement
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Formula for Retained Earnings
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Beginning balance, add net income, deduct dividends.
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