Financial Accounting (Ch 1-4)

lender, money supplier

person or organization who is in debt or under financial obligation to another

a system that collects and processes financial information about an organization and reports that information to decision makers

borrowing/paying back money to lenders and receiving additional funds from stockholders or paying them dividends

buying/selling items (such as plant and equipment used in the product production process means)

the day-to-day process of purchasing supplies, manufacturing products, delivering them to customers, collecting cash from customers, and paying suppliers

for external decision makers; common standardized language

for internal decision makers

report financial position (assets, liabilities, and stockholder's equity)

the organization for which financial data are to be collected

Assets = Liabilities + Stockholder's Equity

economic resources owned by the entity

amount of financing provided by creditors

amount of financing provided by owners of the business and reinvested earnings

investment of cash and other assets in the business of stockholders (# of shares * PAR value per share)

amount of profits reinvested in the business

reports accountant's primary measure of performance of a business (Revenues - Expenses)

cash/promise amounts expected to be received for goods/services that have been delivered to a customer

cash/promise amount of resources the entity used to earn revenues

revenues earned - expenses incurred

time period covered by the financial statements (usually 1 year)

reports changes in business' stockholders equity accounts via net income & dividends during the accounting period (beginning retained earnings + Net Income - Dividends = ending retained earnings)

reports cash inflows and outflows via cash flows from operating, investing, financing

provides supplemental information about the financial condition of a company

measurements and disclosure rules used to develop the information in financial statements

an examination of the financial reports to ensure honesty and GAAP confirmation

can influence a decision

requires that the information be complete, neutral and free from error

states that a business' activities are accounted for separately from those of its owner

states that business are assumed to continue into the foreseeable future

states that accounting information should be measured and reported in the national monetary unit without any adjustment for changes in purchasing power

is applied to measuring different assets & liabilities

assets that will be used or turned into cash within 1-year

property and equipment, long-term investments

liabilities that a business will need to pay or settle within the coming year

notes payable

internal (exchange) and external events (adjustment)

every transaction has at least 2 effects on the fundamental accounting model

minimum amount a stockholder must contribute

amount of capital contributed by the stockholders less the PAR value of the stock

a listing in chronological order of each transaction's effect

a record of effects to and balances of each account

left side of the T account

right side of the T account

a list of all accounts with their balances to provide a check (debits=credits)

time is takes for a company to pay cash to suppliers, sell goods/services to customers, and collect cash from customers

indicates that the long life of a company can be reported in shorter time periods

increases in assets or settlement of liabilities from ongoing operations

when a customer pays in advance

expenses not directly related to operating stores

wear and tear on buildings and equipment

a measure of the profit from central ongoing operations

increase in assets or decrease in liabilities from peripheral transactions

decrease in assets or increase in liabilities from peripheral transactions

last expense listed on the income statement before determining net income

ratio used in evaluating the operating performance or profitability of a company (Net Income / Weighted average # of shares of stock outstanding)

records revenues when cash is received and expenses when cash is paid

records revenues when earned and expenses when incurred, regardless of when cash receipts or payments

revenue is recognized when: goods/services are delivered, persuasive evidence of arranged customer payment, price is fixed, and collection is reasonably assured

requires that expenses be recorded when incurred in earning revenue (same period)

no end-of-period adjustments have been made yet to reflect all revenues earned and expenses incurred during the quarter

"how much of every sales dollar generated during the period is profit?" (Net Income / Net Sales)

previously recorded liabilities (unearned revenue)

revenues that have been earned but not yet recorded (investment income)

previously recorded assets (Supplies, Prepaid expenses)

expenses that have been incurred, but not yet recorded (Wages, Interest Payable)

allocation of an assets cost over its estimated useful life to the organization

an account that is an offset to/reduction of the primary account (accumulated depreciation)

(Cost - used cost)

(Net Income / Average # of shares of common stock outstanding)

sales generated per $ of assets (Net Sales / Average Total Assets*) *(beginning + ending /2)

balance sheets accounts that carry their ending balances over

income statement accounts that are closed to retained earnings at the end of the accounting period

transfer balances in temporary accounts to retained earnings and establishes zero balances

additional step in accounting cycle that checks (credits=debits), and temporary accounts closed