Business
Consists of all activities necessary to provide the members of an economic system with goods and services
Sole Proprietorship
Businesses
... [Show More] owned and operated by one single owner
Economic Entity
Requires that a single indentifyable unit of organization be accounted for in all situations
Partnership
A business owned by two or more individuals
Corporation
An entity organized under the laws of a particular state
Share of stock
A certificate that acts as evidence of ownership in a corporation
Bond
A certificate that represents a corporation's promise to repay a certain amount of money and interest in the future
Nonbusiness Entity
An organization operated for some purpose other than to earn profit
Liability
An obligation of a business
Capital Stock
Indicates the owner's contributions to a corporation
Stockholder
One of the owners of a corporation
Creditor
Someone to whome a company or a person has a debt
Asset
A future economic benefit
Revenue
An inflow of assets resulting from the sale of goods and services
Expense
An outflow of assets resulting from the sale of goods and services
Accounting
The process of identifying, measuring, and communicating economic information to various users
Financial Accounting
The branch of accounting concerned with the preparation of financial statements
Owners Equity
The owners' claims on the assets of an entity
Stockholders' Equity
The owners equity in a corporation
Retained Earnings
The part of owners' equity that represents the income earned, less dividends paid over the life of an entity
Net Income
The excess of revenues over expenses
Dividends
Distributions of the net income of a business to its owners
Statement of Retained Earnings
The statement that summarizes the income earned and dividends paid over the life of a business
Cost Principle
Assets are recorded at the cost to aquire them
Going Concern
The assumption that an entity is not in the process of liquidation and that it will continue indefinitley
Generally Accepted Accounting Principles (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
Securities Exchange Commission (SEC)
Federal agency with ultimate authority to determine the rules for preparing statements for companies whose stock is sold to the public
Financial Accounting Standards Board (FASB)
The group in the private sector with the authority to set accounting standards
Auditing
The process of examining the financial statements and the underlying records of a company to render an opinion as to whether the statements are fairly presenteted
Balance Sheet
Tells what obligations will be due in the near future and what assets will be available to satisfy them
Income Statement
Tells the revanues and expenses for a period of time
Statement of Cash Flows
Tells where cash came from and how it was used during the period
Notes
Provide essential details about the company's accounting policies and other key factors that affect its financial condition and performance
Understandibility
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
Faithful Representation
The quality of information that makes it complete, neutral, and free from error
Comparability
The quality that allows a user to analyze two or more companies and look for similarities and differences
Depreciation
The process of allocating the cost of a long-term tangible asset over its useful life
Materiality
The magnitude of an accounting information ommission or misstatement that will affect the judgement of someone relying on the information
Operating Cycle
The period of time between the purchase of inventory and the collection of any recieveable from the sale of the inventory (Most businesses have one less than one year)
Current Assets
Cash and other assets that are reasonably expected to be realized in cash or sold or consumed diring the normal operating cycle of a business or within one year if the operating cycle is less than one year
Investments
Securities not expected to be sold within the next year
Property, Plant and Equiptment
Consists of the various tangible, productive assets used in the operation of a business
Intangible Assets
Lack Physical Substance (Trademarks, copyrights, franchise rights, patents, and goodwill)
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
Capital Stock
Indicates the owner's investment in the business
Common Stock
Single class of capital stock that most companies have
Preferred Stock
A form of capital stock that carries with it certain preferences
Liquidity
The ability of a company to pay its debts as they come due
Working Capital
Current Assets minus current liabilities
Current Ratio
Current Assets divided by current liabilites
Single Step Income Statement
An income statement in which all expenses are added together and subtracted from all revenues
Multiple Step Income Statement
An income statement that shows classifications of revenues and expenses as well as important subtotals
Gross Profit
Sales minus cost of goods sold
Profit Margin
Net Income divided by sales
Operating Activities
Concern the purchase and sale of a product
Investment Activities
Involve the aquisition and sale of long-term or noncurrent assets such as long-term investments (Property, plant, and equiptment)
Financing Activities
Result from the issuance and repayment, or retirment, of longterm liabilities and capital stock and the payment of dividends
External Event
An event involving interaction between the entity and its environment
Internal Event
An event occuring entirely within an entity
Transaction
Any event that is recognized in a set of financial statements
Source Document
A piece of paper that is used as evidence to record a transaction
Account
A record used to accumulate amounts for each individual asset, liability, revenue, expense, and component of stockholder's equity
Chart of Accounts
A numerical list of all accounts used by a company
General Ledger
A book, a file, a hard drive, or another device containin all of the accounts
Debit
An entry on the left side of an account
Credit
An entry on the right side of an account
Journal
A chronalogical record of transactions
Posting
The process of transferring amounts from a journal to the ledger accounts
Journalizing
The act of recording journal entries
General Journal
The journal used in place of a specialized journal
Trial Balance
A list of each account and its balance; used to prove equality of debits and credits
Current Value
The amount of cash or its equivalent that could be recieved by selling an asset currently
Cash Basis
A system of accounting in which revenues are recognized when cash is recieved and expenses are recognized when cash is paid
Accrual Basis
A system of accounting in which revenues are recognized when earned and expenses are recognized when paid
Revenue recognition principle
Revenues are recorded in the income statement when they are realized or realizable and earned [Show Less]