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Unformatted text preview: Accounting Notes p.85 definitions Single-step Income Statement: An IS in which all expenses are added together and subtracted from all revenues. Multi-step Income Statement: An IS that provides the reader with classifications of revenues and expenses as well as with important subtotals. Understandability: The quality of accounting information that makes it comprehensible to those willing to spend the necessary time Relevance: The capacity of information to make a difference in a decision. Reliability: The quality of accounting information that makes it dependable in representing the events it purports to represent. Comparability: The quality of accounting information that allows a user to analyze two or more companies and look for similarities and differences. Consistency: The quality of accounting information that allows a user to compare two or more accounting periods for a single company. Materiality: The magnitude of an omission or a misstatement in accounting information that will affect the judgment of someone relying on the information. Conservatism: The practice of using the least optimistic estimate when two estimates of amounts are about equally likely. Depreciation: The allocation of the cost of a long-term tangible asset over its useful life. Operating cycle: The period of time between the purchase of inventory and the collection of any receivable from the sale of the inventory. Current asset: An 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. Current liability: An obligation that will be satisfied within the next operating cycle or within one year if the cycle is shorter than one year. Liquidity: the ability of a company to pay its debts as they come due. Working capital: Current assets Current liabilities Current ratio: Current assets / Current liabilities Gross Profit: Sales COGS Gross Profit Percentage: Gross profit / sales Profit Margin: Net income / sales Auditors report: The opinion rendered by a public accounting firm concerning the fairness of the presentation of the financial statements. Chapter 1 Notes Accounting: The language of business. The process of identifying, measuring, summarizing, and communicating economic information to various users (internal and external) Number of owners Liability 1. Sole Proprietorship 1 Unlimited 2. Partnership 2 or more Unlimited 3. Corporations Unlimited Limited There are three basic types of business activities : 1. Financing Receipt and repayment of funds needed to operate the business over the long term. They come in the form of investments from owners and borrowings from creditors.investments from owners and borrowings from creditors....
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