NAFTrack Test Accounting Flashcards

Key Accounting Terms and Definitions

• IRS (Internal Revenue Service): Agency responsible for tax collection and enforcement in the U.S.
• FASB (Financial Accounting Standards Board): Nonprofit organization that establishes accounting standards for GAAP.
• GAAP (Generally Accepted Accounting Principles): Framework of accounting guidelines protecting individuals and standardizing financial reporting.
• SEC (Securities Exchange Commission): Federal agency that regulates securities markets and protects investors.
• AICPA (American Institute of CPAs): Organization that governs CPA examinations and audit standards, promotes ethical conduct.
• PCAOB (Public Company Accounting Oversight Board): Oversees audits of public companies, ensuring investor protection.
• IFRS (International Financial Reporting Standards): Set of accounting standards for financial reporting, facilitating cross-border commerce, particularly in the EU.

Fundamental Accounting Principles

• Principle of Regularity: Ensures consistent application of accounting principles.
• Principle of Sincerity: Emphasizes the need for honesty and accuracy in financial statements.
• Principle of Permanence of Methods: Advocates for consistent methods in financial analysis.
• Principles of Noncompensation: Requires complete disclosure, ensuring no concealment of information.
• Principle of Prudence: Cautions against overstating financial statements; emphasizes caution in transactions.
• Principle of Continuity: Assumes a company will continue to operate indefinitely when recording transactions.
• Principle of Periodicity: Divides financial activities into time periods for reporting purposes.
• Principle of Method: Requires the use of the same accounting methods over time to ensure comparability.

The Accounting Cycle

• Steps include collecting documents, journalizing transactions, posting to ledgers, preparing trial balances and financial statements, and closing temporary accounts.

Financial Concepts and Ratios

• Liabilities: Obligations such as accounts payable and mortgages.
• Trial Balance: Tool to verify that total debits equal total credits.
• Errors in Trial Balance: Procedures to identify discrepancies include re-adding and examining potential transposition or sliding errors.
• Journal: Initial record for all transactions, maintaining chronological order.

Financial Statements and Accounting Methods

• Income Statement: Evaluates business performance over a defined period, revealing net income or loss.
• Cash Accounting: Records transactions upon cash receipt.
• Accrual Accounting: Recognizes income and expenses when transactions occur, regardless of cash flow.
• Statement of Changes in Owner's Equity (SCOE): Shows changes in equity during a specific period.

Analytical Techniques

• Return on Sales Ratio (ROS): Assesses efficiency by comparing net income to revenue.
• Horizontal Analysis: Examines trends over time by comparing financial statements across years.
• Vertical Analysis: Analyzes each line item in relation to total revenue or expenses, evaluating how resources are allocated.

Liquidity and Capital Management

• Current Ratio: Evaluates liquidity by dividing current assets by current liabilities; a ratio of 2 is considered healthy.
• Working Capital: Calculated by subtracting current liabilities from current assets, providing insight into operational liquidity.

Internal Controls and Security

• Internal Controls: Encompass policies promoting ethical behavior, financial integrity, and asset security.
• Cash Controls: Methods such as transaction documentation and secure cash handling.
• Segregation of Duties: Ensures transaction authorization and recording are performed by separate individuals to prevent fraud.
• Independent Verification: Involves audits and rotation of responsibilities to enhance accountability.

External Accounting Standards and Practices

• External Controls: Influence of legal standards like GAAP, SEC regulations, audits, and laws on accounting practices.
• Forensic Accounting: Investigative accounting used in cases of suspected fraud or financial misconduct, often utilized as court evidence.

Test your knowledge of essential accounting terms with these flashcards designed for the NAFTrack curriculum. Each card provides a key term and its definition to help you grasp important concepts in accounting and finance.