Financial Accounting - Chapter 1: The Financial Statements

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College: First year
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accounting
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1

Accounting

Information system. Measures business activities, processes that information into reports and financial statements. Communicates results to decision makers.

2

Accounting Equation

Assets = Liabilities + Owners Equity ... Must be equal

3

Asset

Economic resource expected to be of value in the future

4

Balance Sheet

List of an entity's assets, liabilities and owner's equity. Also called the statement of financial position

5

Common Stock

Most basic form of capital stock

6

Current Assets/Liabilities

An asset expected to be liquidated to cash, or a debt due to be paid within one year.

7

Expenses

Decrease in retained earnings that result from operations; the cost of doing business

8

Fair Value

The amount that a business could sell an asset for or the amount that a business could pay to settle a liability.

9

Financial Accounting

The branch of Accounting that provides information to people outside of the firm

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Generally Accepted Accounting Principles

Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accounting is practiced

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Going-Concern (Continuity) Assumption

Holds that the entity will remain in operation for the foreseeable future

12

Income Statement

A financial statement listing an entity's revenues, expenses, and net income or net loss for the period: Net Income(Loss) = Revenues - Expenses

13

Liability

An economic obligation payable to an individual or an organization outside of the business

14

Owner's Equity

The claim of the owner's of a business to the assets of the business, also called capital, stockholder's equity, or net assets

15

Paid-in Capital

The amount of stockholders' equity that stockholders have contributed to the corporation. Also called contributed capital

16

Proprietorship

A business with a single owner

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Retained Earnings

The amount of a stockholders' equity that a corporation has earned through profitable operation and has not given back to stockholders.

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Revenues

Increase in Retained Earnings from delivering goods or services to customers or clients

19

Stable-Monetary-Unit Assumption

The reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar's purchasing power is relatively stable.

20

Statement of Cash Flows

Reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing

21

Operating Activities

Activities that create revenue or expense in the entity's major line of business; a section of the statement of cash flows. These activities affect the income statement.

22

Investing Activities

Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows.

23

Financing Activities

Activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows.