Financial Accounting Chapter 1

Accounting The information system that identifies, records, and communicates the economic events of an organization to interested users. Assets Resources a business owns. Balance Sheet Financial statement that reports the assets, liabilities, and owner's equity at a specific date. Accounting Equation Assets = Liabilities + Stockholder's Equity Bookkeeping A part of accounting that involves only the recording of economic events Common Stock The total amount paid in by stockholders for the shares they purchase. Corporation A separate legal entity, organized under corporate law, having ownership divided into transferable shares of stock. Cost Principle An accounting principle that states that companies should record assets at their cost. Dividend A distribution by a corporation to its stockholders on a pro rata or equal basis. Economic Entity Assumption Requires that the activities of an entity be kept separate and distinct from the activities of its owners and all other entities. Ethics The standards of conduct by which one's actions are judged right or wrong, honest or dishonest, fair or not fair. Exenses The cost of assets consumed or services used in the process of earning revenue. Fair Value Principle An accounting principle that states that companies should record their assets at fair value. Faithful representation Numbers and descriptions of financial information match what really existed or happened. Financial Accounting The field of accounting that provides economic and financial information for investors, creditors, and other external users. FASB Financial Accounting Standards Board. A private organization that establishes generally accepted accounting principles. Income Statement A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time. IASB International Accounting Standards Board. An accounting standard-setting body that issues standards adopted by many countries outside the United States. Liabilities Creditor claims on total assets. Monetary Unit Assumption An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money. Net Income The amount by which revenues exceed expenses. Net Loss The amount by which expenses exceed revenues. Partnership A business owned by two or more persons associated as partners. Proprietorship A business owned by one person. PCAOB Public Company Accounting Oversight Board (Peekaboo) It determines auditing standards and reviews auditing firms. Relevance It means that financial information is capable of making a difference in a decision. Retained Earnings Statement A financial statement that summarizes the changes in retained earnings for a specific period of time. Revenues The gross increase in stockholder's equity resulting from business activities entered into for the purpose of earning income. Sarbanes-Oxley Act of 2002 (SOX) Law passed by Congress in 2002 intended to reduce unethical corporate behavior. SEC Securities and Exchange Commission. A governmental agency that requires companies to file financial reports in accordance with generally accepted accounting principles (GAAP). Statement of Cash Flows A financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time. Stockholder's Equity The ownership claim on a corporation's total assets. Transactions The economic events of a business that are recorded by accountants.