- C1 Accounting
- A system that identifies, records, and communicates the events of an organization to interested users.
- C1 Recordkeeping (bookkeeping)
- The recording of transactions and events, either manually or electronically. Part of accounting.
- C1 Financial accounting
- The area of accounting aimed at serving external users by providing general-purpose financial statements.
- C1 Managerial accounting
- The area of accounting aimed at serving internal users with more detailed, forward-looking information.
- C1 External users
- People outside an organization who use its financial reports, such as investors and creditors.
- C1 Internal users
- People inside an organization who use its financial reports, such as managers and officers.
- C1 Ethics
- A code of conduct that distinguishes right from wrong. A commitment to ethics is the foundation of accounting.
- C1 Fraud triangle
- The three factors that typically must exist for fraud to occur: opportunity, pressure, and rationalization.
- C2 Generally accepted accounting principles (GAAP)
- The rules that specify acceptable accounting practice, so financial statements are comparable across companies.
- C2 Financial Accounting Standards Board (FASB)
- The private group that sets both broad and specific accounting principles in the United States.
- C2 Securities and Exchange Commission (SEC)
- The government agency with the legal authority to set GAAP and regulate financial markets in the United States.
- C2 International Accounting Standards Board (IASB)
- The independent group that sets accounting standards used by many countries outside the United States.
- C2 International Financial Reporting Standards (IFRS)
- The accounting standards issued by the IASB, used by more than 100 countries.
- C2 Conceptual framework
- The underlying concepts that form the basis for developing accounting principles and standards.
- C2 Measurement (cost) principle
- Accounting information is based on actual cost, which is considered objective and verifiable.
- C2 Revenue recognition principle
- Recognize revenue when goods or services are provided to customers, at the amount expected to be received.
- C2 Expense recognition principle
- Record the expenses that helped generate revenue in the same period as that revenue.
- C2 Full disclosure principle
- A company reports the details behind financial statements that would impact a user’s decisions.
- C2 Going-concern assumption
- Accounting information reflects the assumption that a business will continue operating, not liquidate.
- C2 Monetary unit assumption
- Transactions and events are expressed in monetary, or money, units.
- C2 Time period assumption
- An organization’s activities can be divided into specific time periods such as a month, a quarter, or a year.
- C2 Business entity assumption
- A business is accounted for separately from its owner or owners and from any other entity.
- C2 Materiality constraint
- Financial information is material if it would influence the decision of a reasonable user.
- C2 Benefit exceeds cost constraint
- Information disclosed only if the benefit of doing so exceeds the cost of providing it.
- C3 Sole proprietorship
- A business owned by one person that has unlimited liability and is not taxed separately.
- C3 Partnership
- A business owned by two or more people that has unlimited liability and is not taxed separately.
- C3 Corporation
- A business owned by one or more shareholders and legally separate from them, with limited liability.
- A1 Assets
- Resources a company owns or controls that are expected to provide future benefits.
- A1 Liabilities
- Obligations to transfer assets or provide products or services to others in the future.
- A1 Equity
- The owners’ claim on assets, after subtracting liabilities. Equity = Assets − Liabilities.
- A1 Common stock
- The equity account recording amounts received from investors in exchange for shares of ownership.
- A1 Dividends
- Distributions of a corporation’s earnings to its shareholders, which reduce equity.
- A1 Revenues
- The increase in equity from a company’s earning activities, such as selling products or services.
- A1 Expenses
- The cost of assets or services used to earn revenues, which decreases equity.
- A1 Accounting equation
- Assets = Liabilities + Equity. It always stays in balance, transaction by transaction.
- A1 Expanded accounting equation
- Assets = Liabilities + Common Stock − Dividends + Revenues − Expenses.
- P1 Net income
- The amount earned after subtracting all expenses from all revenues for a period.
- P1 Net loss
- The amount by which expenses exceed revenues for a period.
- P1 Income statement
- The financial statement that reports revenues less expenses, equaling net income, for a period.
- P1 Statement of retained earnings
- The financial statement that reports how retained earnings changed from net income and dividends over a period.
- P1 Balance sheet
- The financial statement that reports a company’s assets, liabilities, and equity as of a point in time.
- P1 Statement of cash flows
- The financial statement that reports cash inflows and outflows for a period, by operating, investing, and financing activity.
- A2 Return on assets
- Net income divided by average total assets; a measure of how efficiently a company uses its assets to generate income.