Card Set Information
201a ch 1 vocab
accounts measure in untis of nominal dollars without accounting for inflation
We assume the business will continue indefinitely unless evidence shows.
AKA Accounting Period. Results of operations (income statement) and financial position (balance sheet) should be reported periodically (EX: every quarter, year, etc.)
Financial affairs of a business entitty & its owners should be separated
Record items as expense in the period they benefit. EX: COGS when they are sold; prior to that time they are recorded as assets.
Entities can't arbitrarily change acctg principles once adopted. EX: LIFO, FIFO, Straight Line, Double Declining, Average Cost. We don't want companies changing accounting principles whenever they want.
Requires all information useful to reasonable informed investor/ creditor be disclosed in the notes in the fin. statements.
Don't worry about the small dollar items. EX
Record Trash can as expense. Nobody cares about the small stuff.
When faced w/ alternative acctg choices, choose the solution least that favorably affects net income.
Substance Over Form
Emphasize the economic rather than the legal form of transaction. EX: Recording equipment leased as an asset.
Actual cost. You record what you paid for. Used to record purchases of PPE, most inventories.
Net Realizable Value
Used for valuing A/R. EX: A/R company on books they will have bad debt so you make a contra acct for doubtful accts.
Present Value of Expected Cash Flows
Used for non-interest bearing note recievables and leases.
Current replacement Cost
Used to value some inventories that have declined in value since purchase. EX: only for inventory damaged acctg goods.
Current Market Value
Used to value certain investments. EX: Corp. buys stocks and bonds we adjust it to market value when selling it.