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Acct. in Business
Accounting Ch. 1 - Accounting in Business
| Term | Definition |
|---|---|
| Accounting | an information and measurement system that identifies, records, and communicates and organization's business activities |
| record keeping or bookeeping | the recording of transactions and events |
| financial accounting | focuses on external users |
| external users | users do NOT directly run the organization and have limited access to its accounting information |
| managerial accounting | focuses on internal users |
| internal users | users directly manage the organization |
| data analytics | a process of analyzing data to identify meaningful relations and trends |
| data visualization | a graphical presentation of data to help people understand their significance |
| ethics | beliefs that separate right from wrong |
| internal controls | help prevent fraud; procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company policies |
| auditors | examine if financial statements are prepared using GAAP |
| generally accepted accounting principles (GAAP) | concepts and rules that govern financial accounting; states that information needs to be reliable and faithful to |
| financial accounting standards board (FASB) | sets GAAP for the Security and Exchange Commission (SEC) |
| security and exchange commission (SEC) | a U.S. government agency that oversees proper use of GAAP by companies that sell stock and debt to public |
| international accounting standards board (IASB) | issues the International Financial Reporting Standards (IFRS) that identify preferred accounting practices |
| measurement principle or cost principle | states that if cash is given for a service, its cost is measured by the cash paid. if something else is exchanged, like the trading of cars, cost is measured as the cash value of what is given up or received |
| revenue recognition principle | revenue is recognized or recorded when 1) goods and services are provided to customer 2) at the amount expected to be received from the customer |
| expense recognition principle or matching principle | when a company records the expenses it incurred to generate the revenue reports, like rent |
| full disclosure principle | when a company reports the details behind financial statements that would impact users' decisions, often in the footnotes of a statement |
| going-concern assumption | accounting information presumes that the business will continue operating instead of being closed or sold. this means, for example, that property is reported at cost instead of liqidation value |
| monetary unit assumption | transactions and events are expressed in monetary units, like USD |
| time period assumption | the life of a company can be divided in time periods, such as years, and useful reports can be prepared for those periods |
| business entity assumption | a business is accounted separately from its owner and other business entities |
| stock | a share in the ownership of a company, including a claim on the company's earnings and assets |
| common or capital stock | when a corporation issues only one class of stock |
| share or stockholder | an owner of shared or stocks in a corporation |
| proprietorship | a business with one owner |
| members | in relation to an LLC (limited liability company), they're owners, can be 1 or more |
| cost-benefit constraints or cost constraints | says that information disclosed by an entity must have benefits to the user that are greater than the costs of providing it |
| assets | resources a corporation owns or controls, expected to yield benefits |
| liabilities | creditors' claims on assets. these claims are obligations to provide assets, products, or services to others |
| equity | the owner's claim on assets and is equal to assets minus liabilities |
| the accounting equation | * assets = liabilities + equity * equity = assets - liabilities * liabilities = assets - equity |
| the expanded accounting equation | assets = liabilities + (owner, capital - owner, withdrawal + revenue - expenses) in parentheses is equity |
| owner, capital | owner investments, increases equity. inflows of cash and other net assets from owner contributions |
| owner, withdrawal | decreases equity, outflows of cash and other assets to owners for personal use |
| revenue | increases equity (via net income), from sales of products and services to customers |
| expenses | decreases equity (via net income), from costs of providing products and services to customers |
| external tansactions | exchanges of value between two entities, cause changes in the accounting equation |
| internal transactions | exchanges within an entity, which may or may not affect the accounting equation |
| events | happenings that affect the accounting equation and are reliably measured, include business events (changes in market value) and natural events (a fire that destoys assets) |
| net income | when revenue is greater than expenses when expenses are less than revenue |
| net loss | when expenses are greater than revenue when revenue is less that expenses |
| return on assets (ROA) | helps evaluate if management is effectively using assets to generate net income * ROA = net income / average total assets * net income = average total assets x ROA * average total assets = net income / ROA |
Created by:
Kendall Posey
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