Textbook Notes (368,317)
Canada (161,798)
Accounting (533)
ACC 100 (214)
Else Grech (70)
Chapter 1-6

Chapters 1-6

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ACC 100
Else Grech

CHAPTER 1 Key words Definitions Business All activities necessary to provide the members of an economic system with goods and service Business entity Organization operated to earn a profit Economic entity The assumption that a single, identifiable unit must be accounted concept for in all situations Sole proprietorship: Form of a organization with a single owner Partnership: A business owned by two or more individuals; organization form often used by accounting firms and law firms Corporation: A form of entity organized under the laws of a particular jurisdiction; ownership evidenced by shares A share: A certificate that acts as ownership in a corporation Bond: A certificate that represents a corporations promise to repay a certain amount of money and interest in the future Non-business Organization operated for some purpose other than to earn a profit entity: Liability an obligation of a business Capital stock Indicates the owners contributions to a corporation Shareholder one of the owners of a corporation Asset Future economic benefit Revenue An inflow of assets resulting to the sales of goods and services Expense An outflow of assets resulting to the sales of goods and services Accounting Process of identifying, measuring, and communicating economic information to various users Management The branch of accounting concerned with providing management accounting Financial The branch of accounting concerned with communication with Accounting outsiders through financial statements Owners equity the owners claims to the assets of an entity Shareholders the owners equity of a corporation equity Retained earnings the part of owners equity that represents the income earned less dividends paid over the life of an entity Balance sheet the financial statement that summarizes the assets, liabilities, and owners equity at a specific point in time Income statement A statement that summarizes revenues and expenses for a period of time Dividends a distribution of the net income of a business to its shareholders Statement of the statement that summarizes the income earned and dividends retained earnings paid over the life of a business www.notesolution.com Cost principle assets are recorded and reported at the cost paid to acquire them Going concern the assumption that an entity is not in the process of liquidation and that it will continue indefinitely GAAP the various methods, rules, practices, and other procedures that have evolved over time in response to the need to regulate the preparation of financial statements www.notesolution.com www.notesolution.com Materiality Magnitude of an accounting information omission or misstatement that will affect the judgment of someone relying on the information. Exhibit 2-2 (page 57) BALANCE SHEET Operating cycle Current assets: Asset that is expected to be realized in cash or sold or consumed during the operating cycle or within one year if the cycle is shorter than one year. (short term) o Cash, Accounts receivable, inventory temporary investments, prepaid expenses. o Typically called either temporary investments or marketable securities Non-current assets: Assets that do not meet definition of a current asset ( long term). Divided in three common categories: o Investments: Securities that are not expected to be sold within the next year are classified as investments. (usually in stocks of other companies) o Property, plant and equipment: assets held for use in the operation of a business rather than for resale.land is always put first) o Intangibles: they provide benefits to the firm over the long term, although they lack physical substance. (Trademarks, copyrights, franchise rights, patents, goodwill) Current liability: Obligation that will be satisfied within the next operating cycle or within one year if the cycle is shorter than a year. Long term liabilities: Obligations that will not be satisfied within the next year or the operating cycle. (note payables and payable bonds > promise to pay money in the future) Shareholders equity: owners claim on the assets of the business. o Contributed capital (capital stock): indicates the owners investment in the business o Earned capital (retained earnings) : represents the accumulated earnings or income since its inception minus all dividends paid. Balance sheet Liquidity: ability of a company to pay its debts as they come due. Working capital = Current Assets Current Liabilities o Working capital determines the liquidity of a company o Strive for a balance in working capital little/negative working capital = inability to pay creditors on timely basis Overabundance working capital = not investing enough of its funds. Current Ratio: Related measure of liquidity that allows us to compare the liquidity of companies of different sizes and of a single company over time. www.notesolution.com
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