accounting stice vocabulary ch 1.txt

vocabulary ch 1

A service activity whose “function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions—in making reasoned choices among alternative courses of action” (Statement of the Accounting Principles Board No. 4, par. 40).

The time intervals used for financial reporting; due to the need for timely information, the life of a business or other entity is divided into specific accounting periods for external reporting purposes. One year is the normal reporting period, although most large U.S. companies also provide quarterly statements.

Accounting Principles Board

A board of the AICPA that issued Opinions establishing accounting standards during the period 1959–1973.

The official statements of the FASB that govern external financial reporting.

American Accounting Association

An organization primarily for accounting professors. The AAA’s role in establishing accounting standards includes research projects to help the FASB and a forum for representing different points of view on various issues.

American Institute of Certified Public Accountants

A professional organization for CPAs in which membership is voluntary. It publishes a monthly journal, the Journal of Accountancy.

Exchanges between parties who are independent of each other. A traditional assumption in accounting is that recorded transactions and events are executed between independent parties, each of whom is acting in its own best interest.

certified public accountants

An accountant who has met specified professional requirements established by the AICPA and local and state societies. A CPA often does not work for a single business but provides a variety of professional services for many different individual and business clients. A key service provided by CPAs is the performance of independent audits of financial statements.

A quality of useful accounting information based on the premise that information is more useful when it can be related to a benchmark or standard, such as data for other firms within the same industry.

A concept of income measurement and reporting that includes all changes in owners’ equity except investments by and distributions to owners.

A theoretical foundation underlying accounting standards and practice. The framework established by the FASB encompasses the objectives, fundamental concepts, and implementation guidelines described in FASB Concepts Statement Nos. 1–7.

The notion that when doubt exists concerning two or more reporting alternatives, users should select the alternative with the least favorable impact on reported income, assets, and liabilities.

A quality of useful accounting information requiring that accounting methods be followed consistently from one period to the next.

Outside parties who are owed money by a company.

The cash equivalent price that would be paid currently to purchase or replace goods or services.

Reporting the details of a transaction in the notes to the financial statements. Disclosure is sometimes used in place of recognition; that is, instead of including the results of a transaction in the financial statements themselves, it is disclosed in the notes.

A specific reporting unit, separate and distinct from its owners or other entities.

Emerging Issues Task Force

A task force of representatives from the accounting profession and industry created by the FASB to take timely action on emerging issues of financial reporting. The EITF identifies significant emerging issues and develops consensus positions when possible.

A preliminary statement of a standard that includes specific recommendations made by the FASB. Reaction to the Exposure Draft is requested from the accounting and business communities, and the comments received are carefully considered before a final Accounting Standards Update is issued.

The cash equivalent price that could be obtained by selling an asset in an orderly transaction.

A key ingredient of relevant accounting information; helps to confirm or change a decision maker’s beliefs based on whether the information matches what was expected.

The activity associated with the development and communication of financial information for external users.

Financial Accounting Foundation

An organization responsible for selecting members of the FASB, GASB, and their advisory councils.

Financial Accounting Standards Board

Responsible for studying accounting issues and establishing accounting standards to govern financial reporting in the United States.

A basic accounting concept that requires that all relevant information be presented in an unbiased, understandable, and timely manner.

generally accepted accounting principles

Accounting standards recognized by the accounting profession as required in the preparation of financial statements for external users. Currently, the FASB is the principal issuer of generally accepted accounting principles.

A balance sheet, income statement, and statement of cash flows.

An entity that is expected to continue in existence for the foreseeable future.

Governmental Accounting Standards Board

An independent private organization responsible for establishing standards in state and local governmental areas.

The cash equivalent price of goods or services at the date of acquisition.

Internal Revenue Service

U.S. government agency responsible for administering U.S. income tax rules.

International Accounting Standards Board

International group, based in London, representing accounting bodies in over 100 countries formed to develop accounting standards that can serve as the basis for harmonizing conflicting national standards.

Owners and potential owners of a company.

The activity associated with financial reporting for internal users.

An important constraint underlying the reporting of accounting information; it relates to how large an item is in terms of dollar amount. Accounting standards do not need to be applied to items that are considered to be immaterial.

The amount of cash expected to be received from the conversion of assets in the normal course of business.

A key ingredient of reliable accounting information requiring that information be presented in an unbiased manner; neutrality relates to the concept of fairness to users.

• Helps a decision maker predict future consequences based on
• information about past transactions and events.

• Present (or discounted) value?
• Amount of net future cash inflows or outflow discounted to their present value of an appropriate rate of interest.

The process of formally recording an item in the accounting records and eventually reporting it in the financial statements; includes both the initial recording of an item and any subsequent changes related to that item.

One of two primary qualities inherent in useful accounting information; essentially, information is relevant if it will affect a decision. The key ingredients of relevance are feedback value, predictive value, and timeliness.

One of two primary qualities inherent in useful accounting information; to be reliable, information must contain the key ingredients of verifiability, neutrality, and representational faithfulness.

A key ingredient of reliable accounting information requiring that the amounts and descriptions reported in the financial statements reflect the actual results of economic transactions and events.

Securities and Exchange Commission

A U.S. government agency created to regulate the issuance and trading of securities in the United States. As part of this function, the SEC is vitally interested in financial accounting and reporting standards. The SEC has the legal authority to establish accounting standards, but it has historically relied heavily on the private sector to perform this function.

An accounting assumption that the measuring unit maintains constant purchasing power; based on this assumption, U.S. financial statements have traditionally reported items in nominal dollars without adjustment for changes in purchasing power.

All parties interested in the performance of a company.

A report that shows the total changes in all owners’ equity accounts during a period of time; provides a reconciliation of the beginning and ending owners’ equity amounts.

Statements of Financial Accounting Concepts

Quality of information that is provided on a timely basis.

A key ingredient of reliable accounting information; reported information should be based on objectively determined facts that can be verified by other accountants using the same measurement methods.

A set of guidelines established by the FASB to provide a conceptual framework for establishing and administering accounting standards.