Chapter 1 Key Terms

Cards (60)

  • Accounting
    Information and measurement system that identifies, records, and communicates relevant information about a company's business activities.
  • Accounting equation
    Equality involving a company's assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation.
  • Assets
    Resources a business owns or controls that are expected to provide current and future benefits to the business
  • Audit
    Analysis and report of an organization's accounting system, its records, and its reports using various tests.
  • Auditors
    Individuals hired to review financial reports and information systems. Internal auditors of a company are employed to assess and evaluate its system of internal controls, including the resulting reports. External auditors are independent of a company and are hired to assess and evaluate the "fairness" of financial statements (or to perform other contracted financial services).
  • Balance sheet
    Financial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date.
  • Bookkeeping
    Part of accounting that involves recording transactions and events, either manually or electronically; also called recordkeeping.
  • Business entity assumption
    Principle that requires a business to be accounted for separately from its owner(s) and from any other entity
  • Common stock
    Corporation's basic ownership share; also generically called capital stock.
  • Conceptual framework
    The basic concepts that underlie the preparation and presentation of financial statements for external users; can serve as a guide in developing future standards and resolving accounting issues that are not addressed directly in current standards using the definitions, recognition criteria, and measurement concepts for assets, liabilities, revenues, and expenses.
  • Corporation
    Business that is a separate legal entity under state or federal laws; its owners are referred to as shareholders or stockholders.
  • Cost constraint
    The notion that the benefit of a disclosure exceeds the cost of that disclosure.
  • Cost principle
    Accounting principle that prescribes financial statement information be based on actual costs incurred in business transactions.
  • Cost-benefit constraint

    The notion that the benefit of a disclosure exceeds the cost of that disclosure.
  • Data analytics
    A process of analyzing data to identify meaningful relations and trends; in accounting, data analytics helps individuals make informed business decisions.
  • Data visualization
    A graphical presentation of data to help people understand its significance and draw reliable inferences.
  • Equity
    Owner's claim on the assets of a business; equals the residual interest in an entity's assets after deducting liabilities; also called net assets or owner's equity.
  • Ethics
    Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest.
  • Events
    Happenings that both affect an organization's financial position and can be reliably measured.
  • Expanded accounting equation
    Expanded version of: Assets = Liabilities + Equity. For a noncorporation: Equity = Owner's capitalOwner's withdrawals + Revenues − Expenses. [For a corporation: Equity = Contributed capital + Retained earnings + Revenues − Expenses − Dividends.]
  • Expense recognition (or matching) principle
    Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.
  • Expenses
    Outflows or using up of assets as part of operations of a business to generate sales.
  • External transactions
    Exchanges of economic value between one entity and another entity.
  • External users
    Persons using accounting information who are not directly involved in running the organization.
  • Financial accounting
    Area of accounting aimed mainly at serving external users.
  • Financial Accounting Standards Board (FASB)
    An independent group of full-time members is responsible for setting accounting rules.
  • Full disclosure principle
    Principle that prescribes financial statements (including notes) to report all relevant information about an entity's operations and financial condition.
  • Generally accepted accounting principles (GAAP)

    Rules that specify acceptable accounting practices.
  • Going-concern assumption
    Principle that prescribes financial statements to reflect the assumption that the business will continue operating.
  • Income statement
    Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses.
  • Internal controls or internal control system
    All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.
  • Internal transactions
    Activities within an organization that can affect the accounting equation.
  • Internal users
    Persons using accounting information who are directly involved in managing the organization.
  • International Accounting Standards Board (IASB)
    Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS).
  • International Financial Reporting Standards (IFRS)

    Set of international accounting standards explaining how types of transactions and events are reported in financial statements; IFRS are issued by the International Accounting Standards Board
  • Liabilities
    Creditors' claims on an organization's assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events.
  • Limited liability company (LLC)
    Organization form that combines select features of a corporation and a limited partnership; provides limited liability to its members (owners), is free of business tax, and allows members to actively participate in management.
  • Managerial accounting
    Area of accounting aimed mainly at serving the decision-making needs of internal users; also called management accounting.
  • Measurement principle
    Principle that prescribes financial statement information, and its underlying transactions and events, be based on relevant measures of valuation; also called the cost principle
  • Members
    Owners of a limited liability company (LLC); rights and responsibilities are specified in the operating agreement and by state LLC regulations.