chapter 1

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Jcritorto
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101995
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chapter 1
Updated:
2011-09-15 20:06:08
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Chapter one definitions and concepts
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  1. What is accounting?
    • is an information system that reports on the
    • economic activities and financial condition of a business or other organization.


    A. It is the language of business

    B. It is much broader than bookkeeping
  2. ·
    1 owner

    ·
    Limited life

    ·
    Unlimited liability

    ·
    Taxes paid by owner on individual return

    ·
    Easy to start

    ·
    Hard to raise capital
    Sole proprietorships (characteristics)
  3. ·
    2 or more owners

    ·
    Limited life

    ·
    Unlimited liability

    ·
    Owner pays taxes

    ·
    Easy to start


    ·
    Easier to raise capital
    Partnerships (characteristics)
  4. ·
    Many owners unlimited life

    ·
    Limited liability

    ·
    Tax are paid by corporation

    ·
    Easy to raise capital
    Corporations (characteristics)
  5. Managerial accounting who uses this information?
    Internal Management and employes
  6. What is GAAP?
    • The measurement rules established by the FASB are
    • called generally accepted accounting principles ( GAAP) .
  7. What is the historical cost concept?
    • requires that most assets be reported at the
    • amount paid for them ( their historical cost) regardless of increases in market
    • value.
  8. What is the reliability concept?
    • Information is reliable if it can be
    • independently verified.
  9. Assets: what is the definition of an asset?
    • The resources that a business uses to produce
    • earnings
  10. Liabilities: what is the definition of a liability?
    • Creditor claims are called liabilities future
    • obligations of the enterprise
  11. Equity: what is equity?
    Is the investors clams
  12. There are two sources of Owners equity
    • · Contributed
    • by invested by owners

    • · Earned
    • by profitable transaction

    • ·
    • Decreased by distribution
    • of profits in the form of dividends
  13. What is the accounting equation?
    Assets = Claims
  14. How is equity "earned" through operations?
    Is earned through the profits a business shows
  15. What are the four financial statements?
    • ·
    • The balance sheet

    • ·
    • The income statement

    • ·
    • The statement of changes in stockholders’ equity

    • ·
    • Interrelationships among the statements.
  16. What is on the income statement?
    • Matches the expenses with the revenues that
    • occur when operating a business.
  17. What is on the statement of changes in equity?
    • explains the effects of transactions on
    • stockholders’ equity during the accounting period.
  18. What increases equity?
    Profits
  19. What decrease equity?
    Expenses when expenses exceed earnings
  20. What is on the statement of cash flows?
    • explains how a company obtained and used cash
    • during the accounting period. Receipts of cash are called cash inflows , and
    • payments are cash out-flows. The statement classifies cash receipts ( inflows)
    • and payments ( outflows) into
  21. What is articulation?
    • Is the interrelationships among the various
    • elements of the financial statements.
  22. Transaction Analysis
    • Determining the effect of a business event on
    • the financial statements
  23. What is a transaction?
    • A business event that can be measured and recorded. Is
    • a particular kind of event that involves transferring something of value
    • between two entities of transactions include acquiring assets from
    • owners, borrowing money from creditors, and purchasing or selling goods and
    • services.
  24. How is equity earned through operations?
    • ·
    • Through net Income (revenue – expenses = net income)

    Equity

    • ·
    • Contributed capital/common stock

    • ·
    • Retained earnings
  25. Revenue:
    inflow of assets from providing goods and services
  26. Expense:
    • Outflow
    • of assets from producing goods and services
  27. What
    are the financial Statements?
    • Reports
    • about the business

    • ·
    • These reports are distributed to external decision makers

    • Four
    • financial statements
  28. (Assets= liabilities + owners Equity)
    • Balance
    • sheet
  29. (revenue – expenses = net income)
    • Income
    • statement
  30. (Beg balance + investments ( contributions) + net income – Dividends =
    end bal
    • Statement
    • of changes in equity
  31. Inflow – Outflows= Net cash flow
    • Statement
    • of Cash Flow

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