Term
| What pieces of information come together to become a company's equity? |
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Definition
| Common stock-dividends+revenues-expenses |
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Term
| Three important concepts important to revenue recognition: |
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Definition
1. Revenue is recognized when earned
2. Proceeds from selling products and services need not be in cash
3. Revenue is measured by cash received plus the cash value of any other items received |
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Term
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Definition
| A written framework to guide the development, preparation, and interpretation of financial accounting information. |
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Term
| What is the purpose of accounting? |
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Definition
| Accounting is the information and measurement system that identifies, records, and communicates relevant information to help people make better decisions |
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Term
| What is the relation between accounting and recordkeeping? |
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Definition
| Recordkeeping, also called bookkeeping, is the recording of financial transactions and events, either manually or electronically. Recordkeeping is essential to data reliability; but accounting is this and much more. Accounting includes identifying, measuring, recording, reporting, and analyzing business events and transactions. |
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Term
| Identify some advantages of technology for accounting. |
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Definition
| Technology offers increased accuracy, speed efficiency, and convenience in accounting. |
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Term
| Who are the internal and external users of accounting? |
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Definition
| external users of accounting include leaders, shareholders, stockholders, directors customers, suppliers, regulators, lawyers, brokers, and the press. Internal users of accounting include managers, officers, and other internal decision makers involved in strategic and operating decisions. |
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Term
| Identify at least 5 types of managers who are internal users of accounting infortmation. |
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Definition
| Internal users (managers) include those from research and development, purchasing, human resources, production, distribution, marketing, and servicing. |
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Term
| What are the internal controls and why are they important? |
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Definition
| Internal controls are procedures set up to protect assets, ensure reliable accounting reports, promote efficiency, and encourage adherence to company policies |
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Term
| What three-step guidelines can help people make ethical decisions? |
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Definition
| Ethical guidelines are threefold: (1) identify ethical concerns using personal ethics (2) analyze options considering all good and bad consequences, and (3) make ethical decisions after weighing all consequences. |
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Term
| Why are ethics and social responsibility valuable to organizations? |
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Definition
| ethics and social responsibility yield good behavior, and they often result in higher income and a better working environment. |
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Term
| Why are ethics crucial in accounting? |
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Definition
| for accounting to provide useful information for decisions it must be trusted. Trust requires ethics in accounting. |
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Term
| Who sets U.S. accounting rules? |
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Definition
| Two major participants in setting rules include the SEC, and the FASB. (note, accounting rules reflect society's needs, not those of accountants or any other single constituency) |
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Term
| How are U.S. companies affected by international accounting standards? |
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Definition
| most US companies are not directly affected by international accounting standards. International standards are put forth as preferred accounting practices. However, stock exchanges and other parties are increasing the pressure to narrow differences in worldwide accounting practices. International accounting standards are playing an important role in that process. |
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Term
| How are the objectivity concept and the cost principle related? |
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Definition
| the objectivity concept and cost principle are related in that most users consider information based on cost as objective. Information prepared using both is considered highly reliable and often relevant. |
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Term
| Why is the business entity assumption important? |
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Definition
| Users desire information about the performance of a specific entity. If information is mixed between two or more entities, it's usefulness decreases. |
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Term
| Why is the revenue recognition principle important? |
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Definition
| The revenue recognition principle gives preparers guidelines on when to recognize (record) revenue. This is important; for example, if revenue is recognized too early, the statements report revenue sooner than it should and the business looks more profitable than it is. The reverse is also true. |
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Term
| What are the 3 basic forms of business organization? |
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Definition
| The three basic forms is business are sole proprietorships, partnerships, and corporations. |
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Term
| Identify the owners of corporations and the terminology of ownership units. |
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Definition
| Owners of corporations are called shareholders (or stockholders). Corporate ownership is divided into units called shares (or stock). The most basic of corporate shares is common stock (or capital stock). |
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Term
| When is the accounting equation in balance, and what does that mean? |
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Definition
| The accounting equation is: Assets = Liabilities + Equity. This equation is always in balance, both before and after each transaction. |
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Term
| How can a transaction not affect any liability and equity accounts? |
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Definition
| A transaction that changes the makeup of assets would not affect liability and equity accounts. ie purchasing supplies which decreases the cash section of assets but adds a supply section within assets. |
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Term
| Describe a transaction increasing equity and one decreasing it. |
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Definition
| Earning revenue by performing services increases equity and assets. Incurring expenses while servicing clients decreases equity and assets. ie paying rent and employee salary. |
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Term
| Identify a transaction that decreases both assets and liabilities. |
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Definition
| Paying a liability with an asset reduces both asset and liability totals. One example is paying off debit |
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Term
| Explain the link between the income statement of retained earnings. |
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Definition
| An income statement reports a company's revenues and expenses along with the resulting net income or loss. A statement of retained earnings shows changes in retained earnings, including that from net income or loss. Both statements transactions occurring over a period of time. |
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Term
| Describe the link between the balance sheet and the statement of retained earnings. |
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Definition
| The balance sheet describes a company's financial position (assets, liabilities, and equity) at a point in time. The retained earnings amount in the balance sheet is obtained from the statement of retained earnings. |
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Term
| Discuss the three major sections of the statement of cash flows. |
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Definition
| Cash flows from operating activities report cash receipts and payments from the primary business the company engages in. Cash flows from investing activities involve cash transactions from buying and selling long-term assets. Cash flows from financing activities include long-term cash borrowings and repayments to lenders and the cash investments from, and dividends to, the stockholders. |
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Term
| U.S. GAAP is more ____ based while IFRS is more ____ based |
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Definition
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Term
| Which type of business has double taxation on earnings |
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Definition
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Term
| Assets are controlled by the ________ |
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Definition
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Term
| What three pieces of information must all financial statements have at the top of them. |
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Definition
| All financial statements must have the company's name, the type of statement, and the time period of the statement at hand. |
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Term
Expenses > Revenue = a.)___________
Revenue < Expenses = b.)___________ |
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Definition
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