Fundamental Accounting Concepts and Terminology

School: Wilfrid Laurier University - Course: BU BU127 - Subject: Accounting

Midterm 1 Definitions Assets:Economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained. These are the resources that the entity has and can use in its future operations. Current Assets:Assets that will be used or turned into cash, normally within one year Non-Current Assets:Assets that are considered to be long-term because they will be used or turned into cash over a period longer than a year Decision Makers:investors, creditors, managers Investors:Individuals who buy small percentages of large corporations and hope to gain from their investment by receiving dividends and hoping to eventually sell their share of the company at a higher price than what they paid. Creditors:Lend money to a company for a specific length of time and gain by charging interest on the money that they lend. Accounting:Is a system that collects and processes (analyzes, measures and records) financial information about an organization and reports the information to decision makers. Managerial Accounting:Developing accounting information for internal decision makers. Ex. Managers Financial Accounting:Developing accounting information for external users using the four basic financial statements. Ex. Investors, creditors, suppliers and customers. Statement of Financial Position:Reports the amount of assets, liabilities and shareholders equity at a particular point in time. Statement of Earnings:Reports the changes in shareholders' equity during a period from business activities other than investments by shareholders. Statement of Changes in Equity:Reports all changes to shareholders equity during the accounting period Liabilities: Present debts or obligations of the entity to transfer an economic resource as a result of past events. They represent future outﬂows of assets (mainly cash)or services to the creditors that provided the corporation with the resources needed to conduct its business. Current Liabilities:Short-term obligations that will be settled within the coming year by providing cash, goods, other current assets or services. Non-Current Liabilities:All of an entity's obligations not classified as current liabilities. Retained Earnings:Reﬂect the net earnings that have been generated since the creation of the company but not distributed yet to shareholders as dividends. Statement of Cash Flows:Reports the inﬂows and outﬂows that are related to operating, investing, and financing activities during the accounting period. Audit:Is an examination of the financial reports to ensure that they represent what they claim and conform to IFRS. Sole Proprietorship:Unincorporated business owned by one person; usually small in size and common in the retailing, service and farming industries.

Partnership:Unincorporated business owned by two or more persons known as partners. Corporation:Business that is incorporated federally under the Canada business corporations act or Provincially under similar acts. Cost Constraint Measurement:Information should be produced only if the perceived benefits of increased decision usefulness exceed the expected costs of providing that information. Separate Entity Assumption:The activities of each business should be accounted for separately from the activities of the owners, all other persons and entities. Stable Monetary Unit Consumption:Accounting measurements will be in the national monetary unit (ie. $ in Canada) without any adjustments for changes in purchasing power (ie. inﬂation) Unit of Measure Assumption:Accounting information should be measured and reported in the national monetary unit. Continuity Assumption:Businesses are assumed to continue to operate in the foreseeable future and the entity will not go out of business in the future. Historical Cost Principle:Requires assets to be recorded at the historical cash-equivalent cost. Liquidity:How soon an asset is expected by management to be transformed into cash. Account:Standardized record that organizations use to accumulate the monetary effects of transactions on each financial item. Chart of Accounts:List of accounts and their unique numeric codes. Transaction Analysis:The process of studying each transaction to determine its economic effect on the entity in terms of the accounting equation. Journal Entry:An accounting method for expressing the effects of a transaction on various accounts, using the double-entry bookkeeping system. Periodicity Assumption:Assumes that the long life of a company can be reported in shorter time periods, such as months, quarters, and years.