Accounting Chapter 1
Card Set Information
Accounting Chapter 1
Accounting info is based on cost with potential subsequent adjustments to fair value.
Monetary Unit Assumption
Assumes transactions and events can be expressed in monetary units.
Expense Recognition Principle (Matching Principle)
Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
Prescribes financial statements info to be based on actual costs incurred in business transactions.
Business Entity Assumption
Requires a business to be accounted for separately from its owner and from any other entity.
Sole Propreitorship- Owned by one person
Partnership- Owned by 2 or more people
Corporation- A business legally separate from its owners. Its responsible for its own acts and debts.
Area of accounting aimed mainly at serving external users.
Revenue Recognition Principle
Prescribes that revenue is recognized when earned.
Time Period Assumption
An organization's activities can be divided into specific time periods such as months, quarters, or years.
Full Disclosure Principle
Prescribes that a company report details behind financial statements that would impact user's decision.
Accounting information reflects a presumption that the business will continue operating instead of being closed or sold.
Resources a company owns or controls.
What a company owes its nonowners (creditors) in future payments, products, or services.
The claims of its owner(s).
Sales of products or services to customers.
The costs necessary to earn revenues. Expenses decrease equity.
Showing the owner’s claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company’s inception; also referred to as equity..
Assets an owner puts into the company and are included under the generic account Owner, CapitalAccount.
Income Statement (1)
A company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.
Includes net income.
Statement of owner's equity (2)
Changes in equity from net income (or loss) and from any owner investments and withdrawals over a period of time.
Includes capital, investments, net income, and withdrawal.
Balance Sheet (3)
A company’s financial position (types and amounts of assets, liabilities, and equity) at a point in time.
Assets- cash, supplies, and equipment
Liabilities- Accounts payable
State of Cash Flows (4)
Cash inflows (receipts) and cash outflows (payments) over a period of time.