Flashcards to study for chapter 1-3 in Accounting 1
the process of identifying, measuring, recording, and communicating financial information about a company’s activities so decision makers can make informed decisions.
economic resources representing expected future economic benefits controlled by the business (e.g., cash, accounts receivable, inventory, land, buildings, equipment, and intangible assets).
a financial statement that reports the resources (assets) owned by a company and the claims against those resources (liabilities and stockholders’ equity) at a specific point in time.
a company’s assets less its liabilities. Capital is also known as stockholders’ equity.
any cash flow related to obtaining resources from creditors or owners, which includes the issuance and repayment of debt, common and preferred stock transactions, and the payment of dividends.
Cash Flows from financing activities
the cash inflows and outflows that relate to acquiring and disposing of operating assets, acquiring and selling investments (current and long-term), and lending money and collecting loans.
Cash flows from investing activities
any cash flows directly related to earning income, including cash sales and collections of accounts receivable as well as cash payments for goods, services, salaries, and interest.
Cash flows from operating activities
a measure of liquidity that is computed as: Current Assets ÷ Current Liabilities.
the cost of assets used, or the liabilities created, in the operation of the business.
the primary accounting standard-setter in the United States which has been granted this power to set standards by the Securities and Exchange Commission.
Financial Accounting Standards Board (FASB)
a common set of rules and conventions developed by several different organizations over a number of years to guide the preparation of financial statements.
Generally Accepted Accounting Principles (GAPP)
a key performance measure that is computed as sales revenue less cost of goods sold.
Gross Margin (Gross Profit)
gross margin less operating expenses. This represents the results of the core operations of the business.
Income from operations
a financial statement that reports the profitability of a business over a specific period of time.
an independent, privately funded accounting standard-setting body with the goal of developing a single set of high-quality accounting standards that result in transparent and comparable information reported in general purpose financial statements.
International Accounting Standards Board (IASB)
a general term that describes an international set of generally accepted accounting standards.
International Financial Reporting Standards (IFRS)
probable future sacrifices of economic benefits; liabilities usually require the payment of cash, the transfer of assets other than cash, or the performance of services
a company’s ability to pay obligations as they become due.
a section of the annual report that provides a discussion and explanation of various items reported in the financial statements. Management uses this section to highlight favorable and unfavorable trends and significant risks facing the company.
Management's discussion and analysis (MD&A)
the excess of a company’s revenue over its expenses during a period of time.
the excess of a company’s expenses over its revenues during a period of time.
a measure of the proportion of each sales dollar that is profit, determined by dividing net income by net sales.
Net Profit Margin Percentage
(or deficit) the accumulated earnings (or losses) over the entire life of the corporation that have not been paid out in dividends.
the increase in assets that results from the sale of products or services.
the federal agency established by Congress to regulate securities markets and ensure effective public disclosure of accounting information. The SEC has the power to set accounting rules for publicly traded companies.
Securities and Exchange Commission (SEC)
a financial statement that provides relevant information about a company’s cash receipts (inflows of cash) and cash payments (outflows of cash) during an accounting period.
Statement of Cash Flows
the owners’ claims against the assets of a corporation after all liabilities have been deducted.
a measure of liquidity computed as: Current Assets – Current Liabilities.
a principle which states that when more than one equally acceptable accounting method exists, the method that results in the lower assets and revenues or higher liabilities and expenses should be selected.
a principle that requires an expense to be recorded and reported in the same period as the revenue that it helped generate. maturity the date on which a borrower agrees to pay the creditor the face (or par) value.
Expense Recognition (or Matching) Principle
qualitative characteristic of information stipulating it should be complete, neutral, and free from error.
a principle that requires the activities of a company to be initially measured at their cost—the exchange price at the time the activity occurs.
Historical Cost Principle
a list of all active accounts and each account’s debit or credit balance.
a principle that requires revenue to be recognized or recorded in the period in which it is earned and the collection of cash is reasonably assured.
Revenue Recognition Principle
the process of transferring information from journalized transactions to the general ledger.
the type of balance expected of an account based on its effect on the fundamental accounting equation. Assets, expenses, and dividends have normal debit balances while liabilities, stockholders’ equity, and revenues have normal credit balances.
the process whereby companies systematically allocate the cost of their tangible operating assets (other than land) as an expense in each period in which the asset is used.
accounts that have a balance that is opposite of the balance in the related account.
a method of accounting in which revenue is recorded when cash is received, regardless of when it is actually earned. Similarly, an expense is recorded when cash is paid, regardless of when it is actually incurred. Cash-basis accounting does not tie recognition of revenues and expenses to the actual business activity but rather to the exchange of cash.
journal entries that are made at the end of an accounting period to record the completed portion of partially completed transactions
a method of accounting in which revenues are generally recorded when earned (rather than when cash is received) and expenses are matched to the periods in which they help produce revenues (rather than when cash is paid).