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business

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all of the activities necessary to provide the members of an economic system with goods and services

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business entity

answer

an organization operated to earn profit

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sole proprietorship

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a form of organization with a single owner

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economic entity concept

answer

the assumption that a single identifiable unit must be accounted for in all situations

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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

answer

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

answer

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)

answer

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

answer

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)

answer

Objective of Financial Reporting

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Conceptual Framework (Second level)

answer

Qualitative Characteristics Elements

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Conceptual Framework (third level)

answer

Assumptions Principles Constraints

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Elements of a 10K

answer

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

answer

Thesum of liabilities and stockholders equity equals this.

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Balance Sheet

answer

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

answer

Probable and measurable future economic benefits controlled by an entity as a result of past transactions

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Components of Assets

answer

1. Ownership or control 2. Measurability 3. Probability

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Liabilities

answer

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

answer

Residual interest of a firm's owners in the firm's assets, after deducting liabilities

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Market value

answer

Stock price multiplied by outstanding shares

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Income Statement

answer

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)

answer

Total Revenue - Total Expenses

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Revenue

answer

Inflows of assets from selling goods or providing services

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Expenses

answer

Outflows of assets as a result of generating revenues

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Irregular Items

answer

Discontinued operations Extraordinary items Changes in accounting principle

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Extraordinary Items

answer

1. Unusual in nature 2. Infrequent in occurrence or essentially nonrecurring

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Statement of Cash Flows

answer

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

question

Statement of Shareholders' Equity

answer

A schedule that reconciles the change in shareholders' equity during the period (a kind of statement)

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Statement of Comprehensive Income

answer

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

answer

A schedule that connects the related changes in the Balance Sheet and the Income Statement

question

Formula for Retained Earnings

answer

Beginning balance, add net income, deduct dividends.

Using Financial Accounting Information Ch. 1 – Flashcards

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