Horngren's Accounting Chapter 1 Flashcards

Accounting Principles and Concepts

• Generally Accepted Accounting Principles (GAAP): Established guidelines for financial reporting in the U.S. formed by the Financial Accounting Standards Board (FASB).
• Accounting: An information system that measures, processes, and communicates business activities to decision makers.
• Financial Accounting: Focuses on providing information to external stakeholders, such as investors and creditors.
• Managerial Accounting: Concentrates on internal informational needs for decision making within an organization.

Key Entities in Accounting

• Creditor: Individuals or businesses that have lent money or provided goods/services on credit to a business.
• Taxing Authorities: Government entities at local, state, and federal levels responsible for tax collection based on financial information.
• Certified Public Accountants (CPAs): Licensed professionals who provide accounting services to the public.
• Certified Management Accountants (CMAs): Specialized professionals in financial management, usually working in a single organization.
• Financial Accounting Standards Board (FASB): Governs and develops accounting standards in the United States.
• Securities and Exchange Commission (SEC): Regulates and oversees U.S. financial markets to protect investors.

Accounting Assumptions and Principles

• Economic Entity Assumption: An organization is treated as a separate unit for financial reporting.
• Cost Principle: Assets are recorded at their actual acquisition cost.
• Going Concern Assumption: Assumes entities will remain operational for the foreseeable future.
• Monetary Unit Assumption: Financial statements must be presented in a stable monetary unit.

Business Structures

• Sole Proprietorship: A business owned by a single individual.
• Partnership: A business owned by two or more individuals.
• Corporation: A legal entity distinct from its owners, recognized under state law.
• Limited Liability Company (LLC): Protects its members from personal liability for corporate debts.

Financial Statements and Metrics

• Audit: A thorough examination of a company’s financial reports and statements.
• Sarbanes-Oxley Act (SOX): Legislation requiring companies to improve their internal controls and maintain accurate financial reporting.
• Accounting Equation: Represents the relationship between a company's assets, liabilities, and equity (Assets = Liabilities + Equity).

Financial Terms

• Assets: Resources expected to provide future economic benefits.
• Liabilities: Obligations or debts owed to creditors.
• Equity: The owner's claim on the assets of the business.
• Owner's Capital: Contributions made by the owner to the business.
• Revenues: Earnings from providing goods or services.
• Expenses: Costs incurred in the operation of the business.
• Owner's Withdrawals: Distributions of equity to the owner.

Performance Metrics

• Net Income: Indicates profitability when total revenues are greater than expenses.
• Net Loss: Indicates financial loss when total expenses exceed revenues.
• Transaction: Impacts the financial position of a business and can be measured in monetary terms.

Account Types

• Accounts Payable: Short-term debts that need to be settled in the future.
• Accounts Receivable: Money owed to a business from customers for sales made.

Financial Reporting

• Financial Statements: Documents providing essential information for business decisions.
• Income Statement: Summarizes revenues and expenses over a specific period to show net income or loss.
• Statement of Owner's Equity: Details changes in the owner's equity account over time.
• Balance Sheet: Snapshot of the company's assets, liabilities, and owner's equity at a specific point in time.
• Statement of Cash Flows: Reports cash inflows and outflows during a specific period.

Efficiency Measurement

• Return on Assets (ROA): A profitability ratio that measures how effectively a company uses its assets (Net Income/Average Total Assets).

Explore key concepts from Chapter 1 of Horngren's Accounting, 10th Edition through interactive flashcards. This quiz focuses on foundational accounting principles such as GAAP and the overall accounting process. Test your understanding and reinforce your knowledge of essential financial accounting terminology.