Accounting Principles

GAAP Generally accepted accounting principles IFRS International financial reporting standards ASPE Accounting standards for private enterprise Qualitative characteristics Relevance, reliability, understandability and comparability Relevance All information useful for decision making is present in the financial statements. Helps users predict future performance or confirm previous predictions Reliability Information is free from significant error and bias...

Accounting systematic recording, reporting and analysis of financial transactions according to accepted principles in order to provide meaningful financial information Revenue amount of money a business receives over a period of time Operating Revenue income from sales or services based on the goal of the business Non-operating Revenue income which does not come from the primary goal of business Sales Figures represent the amount of revenue generated by the busi...

What is the accounting Cycle? Analyzing, recording, classifying, summarizing, and reporting External Users of accounting info: Investors, Lenders, very strict regulation Internal users of accounting info: Management, not as strict Balance Sheet Reports financial information at a given moment in time. Mimics the accounting equation. A=L+OE Income Statement Reports financial activity for a given time period Statement of cash flows Tells reviewer of info whe...

Compatibility Principle Information system principle that prescribes an accounting system to conform with a company's activities, personnel, and structure. Conservatism Constraint Principle that prescribes the less optimistic estimate when two estimates are about equally likely. Consistency Concept Principle that prescribes use of the same accounting methods over time so that financial statements are comparable across periods. Control Principle Information system princi...

Measurement Principle Records assets in the accounting records at their cost or purchase price Revenue (Revenue Recognition) Principle States that revenue is recognized when it is earned Matching Principle Reports the expenses incurred in generating the revenue in the same period as the revenues are shown as earned by a company Cost Principle Records assets in the accounting records at their cost or purchase price Revenue Recognition States that revenue is recogn...

The personal assets of the owner of a company will not appear on the company's balance sheet because of which principle/guideline? economic entity Which principle/guideline requires a company's balance sheet to report its land at the amount the company paid to acquire the land, even if the land could be sold today at a significantly higher amount? cost The cost principle requires the accountant to show assets at cost and expenses at cost rather than at higher amounts. Accountants are...

Accounting Equation Assets = Liabilities + Stockholders' Equity Assets Resources owned by the company Auditors Trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements. Balance Sheet A financial statement that presents the financial position of the company on a particular date Comparability The ability of users to see similarities and differences between company on a ...

Accounting The systematic recording, reporting, and analysis of financial transactions according to accepted principles in order to provide meaningful financial information Generally Accepted Accounting Principles (GAAP) Accounting rules used to prepare, present, and report financial statements Financial Accounting Standards Board (FASB)Set accounting principles Assets Items of value owned by the company Current Assets Any assets easily converted into cash within...

Economic Entity Assumption The accountant keeps all of the business transactions of a sole proprietorship separate from the business owner's personal transactions For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities Monetary Unit Assumption Economic activity is measured in U.S. dollars, and only transactions that can be expressed in U.S. dollars are recorded. Because of th...

Basic Accounting Equation Assets = Liabilities + Owner's Equity Business Entity The financial statements report about a single business. Every business gets its own set of books. Accountants do not mix in the owner's personal financial information. Current "Current" liabilities are those debts that must be paid within one year or one operating cycle, whichever is longer. Current Ratio Current Assets/Current Liabilities = Current Ratio Debt Ratio Total Liabili...