Accounting Concepts 1
These are the rules and standards for accounting across all companies, called GAAP.
Generally Accepted Accounting Principles.
This concept refers to who or what accounting is for. It could be a specific individual, a company, or a multitude of companies.
The Entity.
This financial statement is a "snapshot" of a company's assets, liabilities and owners equity at one time.
Balance Sheet.
This liability is paid out only AFTER all other debt payments and liability obligations are met.
Owners Equity.
This ratio asks the question: How well is a company able to produce profit in relation to the assets and sales needed to produce it?
Profitability Ratios
"Principle based" International guidelines for accounting, IFRS.
IFRS - International Financial Reporting Standards.
Financial statements are not 100% correct. This concept refers to the degree of correct, or incorrect a piece of information could be.
Materiality
What is the fundamental accounting equation?
Assets = Liabilities + Owners Equity
This financial statement tracks revenue and expenses over a period of time.
Income Statement or Profit and Loss Statement.
This ratio tells a company what they have, which can be easily converted into cash to pay the bills
Liquidity Ratios
This method of accounting records transactions only when cash changes hands
Cash Basis Accounting
This concept states that a company must conduct its accounting using the same methods year after year. If a change is necessary, there must be a "substantial" reason.
Consistency.
In the statement of cash flows, this section refers to the "core activities" of your business.
Operations
This component of a balance sheet refers to the ability of an asset to be converted easily into cash.
Liquidity.
This ratio asks the question: How efficiently are a firms assets being deployed?
Activity ratios
This concept assumes that a business uses its assets efficiently, and has the capacity to continue doing business into the future.
Going Concern
This concept states that sales in one period should be connected to the cost of goods sold in the same accounting period.
Matching
This section of the cash flow statement involves the spending of cash on "non-current" assets or long term assets
Investing Activities.
This component of an Income statement shows the difference between sales revenues and the direct cost of the goods or services sold.
Gross Margin
This ratio deals with how much debt a company is working with.
Capitalization measures.
This method of accounting records transactions when then occur, rather than when cash changes hands.
Accrual Accounting
This concept states that accountants must record transactions in the correct "period of recognition".
Allocation
This financial statement has 4 main sections and tracks the inflow and outflow of cash for a business.
Cash Flow Statement
In the statement of cash flows, this section refers to where a company gets its cash from.
Financing activities.
This phrase refers to purposely committing fraud to alter accounting records.
"Cooking the books"