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Consistency requires that the accounting methods be consistently applied by the company
over time in recording and reporting unless there is a sound reason to change them. If the
motivation is to more accurately match expenses to revenues, the company may find this reason
more compelling than consistency and decide to make the change.
Materiality Something is MATERIAL if it is important or significant.
Some material can be reported combined - - Trivial matters don't have to be recorded/reported in
DETAIL.
The Entity Concept A business is a separately identifiable entity, and only the business
that belongs to the business should be recorded in the financial statements of a firm.
Avoids managers including their own personal expenses, firms making up entities that don't exist
- ex. Enron used special purpose entities to conceal many of the accounting transactions that
happened in the firm.
Money Measurement Principle only values that can be measured in monetary terms get
recorded in the financial statement
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Events / circumstnaces that could have a financial impact on your business are not recorded in
accounts unless they can be reliably measured in monetary terms and they relate to a historical
transaction that has occurred.
Going Concern The business will continue to operate for the foreseeable future - - allows
accountants to make estimates and generate financial statement under the assumption that the
business is a going concern
Assets resources owned or controlled by an entity that will produce benefits in the future.
Liabilities obligations to pay a third party for resources provided to an entity.
Owners' Equity consists of funds contributed by owners as well as profits generated by the
business.
Revenue the money that a business receives from providing goods or services to a
customer.
Expenses the costs associated with provided goods or services to a customer.
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Double Entry Accounting used to record transactions in journal entries with debits on the
left and credits on the right. Total debits must always equal total credits and balance out the
Accounting Equation. ASSETS AND EXPENSES INCREASE WITH A DEBIT.
t-Account shows all activity for a given account for a specific period of time (summary of
all journal entries involving that account) with debits on the left and credits on the right.
- there is a separate T-account for each account
- each T-account has a beginning and ending balance, which may be zero
- every transaction will affect at least two T-accounts
- if you add the ending balances of all T-accounts, the total of all debits must equal the total of all
credits
Trial Balance a list of ALL the business' accounts that have balances at that date, and the
amount in each account shown in either the debit or the credit column. Provides a snapshot of a
business at a specific point in time.
Contains two types of accounts:
1) Real Accounts (Assets, Liabilities and Equity) which reflect the cumulative balance in each
account from the inception of the business on the Balance Sheet;
Experts
Consistency requires that the accounting methods be consistently applied by the company
over time in recording and reporting unless there is a sound reason to change them. If the
motivation is to more accurately match expenses to revenues, the company may find this reason
more compelling than consistency and decide to make the change.
Materiality Something is MATERIAL if it is important or significant.
Some material can be reported combined - - Trivial matters don't have to be recorded/reported in
DETAIL.
The Entity Concept A business is a separately identifiable entity, and only the business
that belongs to the business should be recorded in the financial statements of a firm.
Avoids managers including their own personal expenses, firms making up entities that don't exist
- ex. Enron used special purpose entities to conceal many of the accounting transactions that
happened in the firm.
Money Measurement Principle only values that can be measured in monetary terms get
recorded in the financial statement
, HBX FA Questions And Answers Verified By
Experts
Events / circumstnaces that could have a financial impact on your business are not recorded in
accounts unless they can be reliably measured in monetary terms and they relate to a historical
transaction that has occurred.
Going Concern The business will continue to operate for the foreseeable future - - allows
accountants to make estimates and generate financial statement under the assumption that the
business is a going concern
Assets resources owned or controlled by an entity that will produce benefits in the future.
Liabilities obligations to pay a third party for resources provided to an entity.
Owners' Equity consists of funds contributed by owners as well as profits generated by the
business.
Revenue the money that a business receives from providing goods or services to a
customer.
Expenses the costs associated with provided goods or services to a customer.
, HBX FA Questions And Answers Verified By
Experts
Double Entry Accounting used to record transactions in journal entries with debits on the
left and credits on the right. Total debits must always equal total credits and balance out the
Accounting Equation. ASSETS AND EXPENSES INCREASE WITH A DEBIT.
t-Account shows all activity for a given account for a specific period of time (summary of
all journal entries involving that account) with debits on the left and credits on the right.
- there is a separate T-account for each account
- each T-account has a beginning and ending balance, which may be zero
- every transaction will affect at least two T-accounts
- if you add the ending balances of all T-accounts, the total of all debits must equal the total of all
credits
Trial Balance a list of ALL the business' accounts that have balances at that date, and the
amount in each account shown in either the debit or the credit column. Provides a snapshot of a
business at a specific point in time.
Contains two types of accounts:
1) Real Accounts (Assets, Liabilities and Equity) which reflect the cumulative balance in each
account from the inception of the business on the Balance Sheet;
