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Definition
| a system that colects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers |
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Term
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| (statement of financial postion) reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time |
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| Basic accounting equation |
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Definition
| Balance sheet equation: Assets = Liabilities + Stockholders' Equity |
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| economic resources owned by a company |
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| company's debts or obligations |
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| indicates the amount of financing provided by owners of the business and earnings |
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| (statement of income, statement of earnings) reports the revenues less the expenses of the accounting period |
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| is the time period covered by financial statements |
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| earned by a company from the sale of goods and services |
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| represent the dollar amount of resources the entity used to earn revenues during the period |
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| the excess of total revenues over total expenses |
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| Statement of retained earnings |
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Definition
| reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period |
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| reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing |
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| Generally Accepted Accounting Principles |
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Definition
| are the measurement rules used to develop the information in financial statements |
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| Securities & Exchange Commission |
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Definition
| the US government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statments |
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| Financial accounting standards board |
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Definition
| is the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles |
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Definition
| is an examination of the financial reports to ensure that they represenet what tehy claim and conform with GAAP |
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| Public Company Accounting Oversight Board (PCAOB) |
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Definition
| the private sector body given the primary responsibility to issue detailed auditing standards |
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| Primary objective of external financial reporting |
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Definition
| to provide useful economic information about a business to help external parties make sound financial decisions |
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| Quality characteristics of financial information |
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Definition
Relevant: it is timely and has predictive feedback value
Reliable: information is accurate, unbiased, and verifiable |
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| Separate entity assumption |
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Definition
| states that business transactions are accounted separately from the transactions of owners |
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| Unit of measure assumption |
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Definition
| states that accounting information should be measured and reported in the national monetary unit |
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| states that businesses are assumed to continue to operate into the forseeable future |
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| Historical cost principle |
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Definition
| requires assets to be recorded at historical cost-cash paid plus the current dollar value of all noncash considerations given on the date of exchange |
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| Are assets that will be used or turned into cash within one year. inventory is always a current asset |
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| are obligations that will be settled by providing cash, goods, or services, within the coming year |
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| results from owners providing cash to the business |
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| refers to the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business |
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| exception suggests that small amounts that are not likely to influence the user's decision can be accounted for in the most cost beneficial manner |
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| exception suggests that care should be taken not to overstate assets and revenues or understate liabilities and expenses |
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Definition
-an exchange of assets or services for assets, services, or promises to pay between a business and one or more external parties to a business
OR
-a measurable internal event such as the use of assets in operations |
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Definition
| is a standardized format that organizations use to accumulate the dollar effect of transaction on each financial item |
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| is the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation |
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Definition
(dr) is on the left side of an account
-Assets and revenues have debit balances |
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Definition
(cr) is on the right side of an account
-Liabilities, SE, and expenses |
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Definition
| is an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format |
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Definition
| is a tool for summarizing transaction effect for each account, determining balances, and drawing inferences about a company's activities |
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Definition
Current assets/current liabilities
-measures the ability of a company to pay off its short-term obligations with current assets |
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| is the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers |
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| indicates that the long life of a company can be reported in shorter time periods |
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| are increases in assets or settlements of liabilities from ongoing operations |
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| are decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period |
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| are increases in assets or decreases in liabilities from peripheral transactions |
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| are decreases in assets or increases in liabilities from peripheral transactions |
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| records revenues when cash is received and expenses when cash is paid |
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Definition
| records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments |
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Term
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Definition
states that revenues are recognized when:
1) goods and services are delivered
2)there is persuasive evidence of an arrangement for customer payment
3) the price is fixed or determinable
4) collection is reasonably assured |
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Definition
| requires that expenses be recorded when incurred in earning revenue |
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| Total asset turnover ratio |
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Definition
sales revenues/ average total assets
-assesses managers' use of the company's assets to improve earnings |
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Term
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Definition
| is the process followed by entities followed by entities to analyze and record transactions, adjust the records at the end of the period, prepare financial statements, and prepare the records for the next cycle |
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Definition
| is the list of all accounts with their balances to provide a check on the equality of the debits and credits |
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Definition
| are entries necessary at the end of the accounting period to measure all revenues and expenses of that period |
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| Deferred Revenues (unearned) |
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Definition
| are previously recorded liabilities that need to be adjusted at the end of the accounting period to reflect the amount of revenue earned |
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Term
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Definition
| are previously unrecorded revenues that need to be adjusted at the end of the acocunting period to reflect the amount earned and the related receivable account |
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Term
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Definition
| are previously acquired assets that need to be adjusted at the end of the accounting period to reflect the amount of expense incurred in using the asset to generate revenue |
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Term
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Definition
| is an account that is an offset to, or reduction of, the primary account |
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Term
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| of an asset is the difference between its acquisition cost and accumulated depreciation, its related contra account |
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| are previously unrecorded expenses that need to be adjusted at the end of the accounting period to reflect the amount incurred and the related payable account |
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Definition
net income/net sales
-measures how effective management is at generating profit from every dollar of sales |
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Definition
| are the balance sheet accounts that carry their ending balances into the next accounting period |
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Definition
| are income statement accounts that are closed to retained earnings at teh end of the accounting period |
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Definition
| transfers balances in temporary accounts to retained earnings and establishes zero balances in the temporary accounts |
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| Post Closing trial balance |
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Definition
| should be prepared as the last tep of the accounting cycle to check that debts equal credits and all temporary accounts have been closed |
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Definition
| refers to the procedures designed to ensure that the company is managed in the interests of its shareholders |
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| elected by the stockholders to represent their interests, is responsible for maintaining the integrity of the company's financial reports |
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| Unqualified audit opinion |
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Definition
| is an auditor's statement that the financial statements are fair presentations in all material respects in conformity with GAAP |
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Definition
| are predictions of earnings for future accounting periods |
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| are managers of pension, mutual, endowment, and other funds that invest on the behalf of others |
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| include individuals who purchase shares in companies |
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| include suppliers and financial institutions that lend money to companies |
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| suggests thtat the benefits of accouting for and reporting information should outweigh the costs |
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| can influence a decision; it is timely and has predictive and/or feedback value |
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| is accurate, unbiased, and verifiable |
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| can be compared over time because similar accounting methods have been applied |
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| allows comparisons across businesses because similar accounting methods have been applied |
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| are amounts that are large enough to influence a user's decision |
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| suggests that care should be taken not to overstate assets or understand liabilities and expenses |
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| is a written public new announcement normally distributed to major news services |
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Definition
| the annual report that publicly traded companies must file with the SEC |
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| is the quarterly report that publicly traded companies must file with the SEC |
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Definition
| is used by publicly traded companies to disclose any material event not previously reported that is important to investors |
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| is a legal amount per share established by the board of directors; it establishes the minimum amount a stockholder must contribute and has no relationship to the market price of the stock |
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| additional paid in capital |
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Definition
| is the amount of contributed capital less the par value of the stock |
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Definition
| is net sales less cost of goods sold |
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| equals net sales less cost of goods sold and other operating expenses |
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| income before income taxes |
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Definition
| is revenues minus all expenses except income tax expense |
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Definition
net income/average total assets
-measures how much the firm earned for each dollar of investment |
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Definition
| is the fee charged by the credit card company for its services |
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Definition
| is a cash discount offered to encourage prompt payment of an account receivable |
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| sales returns and allowances |
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Definition
| is a reduction of sales revenues for return of or allowances for unsatisfactory goods |
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Definition
gross profit/net sales
-measures how effective management is at selling goods and services for more than the costs to produce them |
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| are open accounts owed to the business by trade customers |
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Definition
| are written promises that require another party to pay the business under specified conditions |
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| bases bad debt expense on an estimate of uncollectible accounts |
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Definition
| is the expense associated with estimated uncollectible accounts receivable |
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| allowance for doubtful accounts |
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Definition
| is a contra-asset account containing the estimate uncollectible accounts receivable |
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| percentage of credit sales method |
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Definition
| bases bad debt expense on the historical percentage of credit sales that result in bad debt |
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| aging of accounts receivable method |
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Definition
| estimates uncollectibel accounts based on the age of each account receivable |
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| receivables turnover ratio |
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Definition
net sales/average net trade accounts receivable
-how effective are credit-granting collection activities |
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Definition
| money or any instrument that banks will accept for deposit and immediate credit to a company's account, such as a check, money order |
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Definition
| are short-term investments with original maturities of 3 months or less that are readily convertible to cash and whose value is unlikely to change |
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Definition
| are the processes by which a company safeguards its assets and provides reasonable assurance regarding the reliability of the company's financial reporting, the effectiveness and efficiency of its operations, and its compliance with applicable laws and regulations |
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Definition
| is a monthly report from a bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance |
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Definition
| is the process of verifying the accuracy of both the bank statement and the cash accounts of a business |
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Definition
| is tangible property held for sale in the normal course of business or used in producing goods or services for sale |
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Definition
| includes goods held for resale in the ordinary course of business |
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| includes items acquired for the purpose of processing into finished goods |
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| work in progress inventory |
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| includes goods in the process of being manufactured |
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| includes manufactured goods that are complete and ready for sale |
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| refers to the earnings of employees who work directly on the products being manufactured |
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Definition
| are manufacturing costs that are not raw material or direct labor costs |
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| refers to the sum of beginning inventory and purchases for the period |
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| cost of goods sold equation |
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Definition
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| specific identification method |
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Definition
| identifies the cost of the specific item that was sold |
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| first in first out method (FIFO) |
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Definition
| assumes that the first goods purchased are the first goods sold |
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| Last in first out method (LIFO) |
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Definition
| assumes that the most recently purchased units are sold first |
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Definition
| uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory |
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Definition
| is the current purchase price for identical goods |
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Definition
| is the expected sales price less selling costs |
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| lower of cost of market (LCM) |
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Definition
| is a valuation method departing from the cost principle; it serves to recognize a loss when replacement cost or net realizable value drops below cost |
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Definition
| is a contra-asset for the excess of FIFO over LIFO inventory |
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| Perpetual inventory system |
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Definition
| a detailed inventory record is maintained, recording each purchase and sale during the accounting period |
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| periodic inventory system |
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Definition
| ending inventory and cost of goods sold are determined at the end of the accounting period based on physical count |
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