an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s business activities
The generally accepted principles of accounting in America
a principle in which accounting information is based on actual cost. This means if cash is given for a service, its cost is measured as the amount of cash paid.
1. Revenue is recognized when earned. The earnings process is normally complete when
services are performed or a seller transfers ownership of products to the
2. Proceeds from selling products and services need not be in cash. A common noncash proceed received by a seller is a customer’s promise to pay at a future date,
called credit sales.
3. Revenue is measured by the cash received plus the cash value of any other items
Revenue Recognition Principle
a company must record the expenses it incurred to generate the revenue reported
Matching or Expense Recognition Principle
the principle in which a company is required to report the details behind the financial statements if the details so disclosed would impact the users’ decision-making process.
Full Disclosure Principle
in the absence of information to the contrary, a business entity is assumed to continue operations into the foreseeable future
tells us that we will only record accounting information that can be expressed in monetary units, usually dollars in the United States.
Monetary Unit Assumption
tells us that we must separate out the transaction of individual owners of a business
from those of the business.
Business Entity Assumption
presumes that the life of a company can be divided into time periods such as months and years, and that useful reports can be prepared for those periods.
Time Period Assumption
resources a company owns or controls
what a company owes its non-owners
(creditors) in future payments, products, or services
an owner's claim on his/her assets
revenue minus expenses
assets=liabilities + equity
a record of increases and decreases in a
specific asset, liability, equity, revenue, or expense item.
a record containing all accounts used by
What are these examples of: Cash, Land, Building, Equipment, Supplies, Prepaid Accounts (guarantee of a service), Notes Receivable, Account Receivable
What are these examples of: Accounts Payable, Notes Payable, Accrued Liabilities, Unearned Revenue (cash received, but service not performed).
What are these examples of: owner's capital, owner's withdrawals, revenues, expenses.
describes a company’s revenues and
expenses along with the resulting net income or loss over a period of time due
to earnings activities
explains changes in equity from net income (or loss) and from any owner investments and
withdrawals over a period of time.
Statement of Owner's Equity
describes a company’s financial position (types and amounts of assets, liabilities, and
equity) at a point in time.
identifies cash inflows (receipts) and
cash outflows (payments) over a period of time.
Cash Flow Statement
net income divided by total average assets. Total average assets is
computed by adding the beginning total assets to the ending total assets and
divide the total by 2.
Return on Assets
Do not confuse the words Debit and Credit here. They are completely meaningless. Left side is the duck side and right is cow.