Principles Of Accounting - Chapter 1 Terms

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Accounts Rayable

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A liability backed by the general reputation and credit standing of the debtor.

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Accounts Receivable

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An asset representing amounts due from customers to whom the business has sold goods or for whom the business has performed services.

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Accounting

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The information system that measures business activity, processes the results of activities into reports, and communicates the results to decision makers.

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Accounting Equation

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The basic tool of accounting that measures the resources of the business and the claims to those resources: ASSETS = LIABILITIES + OWNER'S EQUITY

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Assets

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Economic resources that are expected to be of benefit in the future.

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Audit

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An examination of a company's financial statements by a Certified Public Accountant to determine their fairness.

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Balance Sheet

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An entity's assets, liabilities, and owner's equity as of a specific date. Also called the statement of financial position.

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Business

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An organization that sells products or services to customers.

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Capital

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The insider claims to the assets of a business by the owner; the owner's interest in the business. Also called owner's equity.

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Certified Management Accountant (CMA)

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A licensed accountant who works for a single company.

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Certified Public Accountant (CPA)

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A licensed accountant who serves the general public rather than one particular company.

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Corporation

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A business owned by stockholders that is an entity legally separate from its owners.

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Entity

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An organization or a section of an organization that, for accounting purposes, stands apart as a separate economic unit.

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Ethics

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Principles of right behavior.

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Expenses

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Decreases to owner's equity from using resources to deliver goods or provide services to customers.

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Fiduciary

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Fiscally responsible; legally and financially trustworthy.

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Financial Accounting

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Accounting that provides information for people outside the business.

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Financial Accounting Standards Board (FASB)

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The primary organization that determines how accounting is practiced in the United States.

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Financial Statements

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Historical, objective reports, prepared according to GAAP, that communicate financial information about a business to those outside the business.

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Financial Activities

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The activities of a business that involve transactions with long-term creditors and stockholders.

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Financial Position

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The resources of a business and the claims against those resources.

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Generally Accepted Accounting Principles (GAAP)

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Accounting rules, created by the Financial Accounting Standards Board, that govern how accountants measure, process, and communicate financial information.

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Going Concern

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The assumption that a business will continue indefinitely.

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Historical Cost

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Actual cost of assets and services acquired.

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Income Statement

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Summary of a business's revenues, expenses, and net income or net loss for a specific period.

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Investing Activities

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The activities of a business that involve buying or disposing of long-term assets.

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Liabilities

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Outsider claims to the assets of a business; the debts owed to outsiders.

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Limited Liability

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Owners of a corporation are not legally responsible for its debts; the amount that stockholders put at risk is limited to the amount they paid for the stock.

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Liquid

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Able to generate enough cash from selling goods or services to pay bills on time.

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Management Accounting

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Accounting that provides information for managers inside a business.

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Manufacturing Companies

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Businesses that make their own products that are sold to the final customer or to other companies.

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Merchandise Companies

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Businesses that sell products made by another company. Also called retail companies.

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Net Income

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The excess of total revenues over total expenses. Also called profit.

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Net Loss

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The excess of total expenses over total revenues.

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Notes Payable

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A written promise of future payment made by the business.

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Objectivity

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Verifiable, confirmable by any independent observer. Also called reliability.

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On Account

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Buying or selling on credit.

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Operating Activities

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The activities of a business that determine net income or net loss.

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Organization Accountability

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The organization's fiduciary responsibility to manage its resources carefully.

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Owner's Equity

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The insider claims to the assets of a business by the owner; the owner's interest in the business. Also called capital.

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Owner Investments

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Amounts added to a business by the owner.

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Owner's Withdrawals

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Amounts removed from the business by the owner.

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Partnership

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A business with two or more owners.

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Prepaid Expenses

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Amounts that are assets of a business because they represent items to be used later but are already paid for.

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Profit

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The difference between the revenues, the sales price of the goods or services sold by the business, and expenses, the cost of the resources used to provide these goods and services. Also called net income.

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Proprietorship

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A business with a single owner.

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Reliability

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Verifiable, confirmable by any independent observer. Also called objectivity.

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Retail Companies

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Businesses that sell products made by another company. Also called merchandise companies.

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Revenues

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Increases to owner's equity earned by delivering goods or providing services to customers.

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Service Companies

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Businesses that provide services to customers.

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Share

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Basic unit of ownership in a corporation.

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Shareholder

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A person who owns stock in a corporation. Also called stockholder.

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Statement of Cash Flows

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Summary of the changes in a business's cash balance for a specific period.

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Statement of Financial Position

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A business's assets, liabilities, and owner's equity as of a specific date. Also called the balance sheet.

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Statement of Owner's Equity

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Summary of the changes in a business's owner's equity during a specific period.

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Stock

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Ownership interest in a corporation.

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Stockholder

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A person who owns stock in a corporation. Also called shareholder.

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Transaction

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An event that affects the financial position of a particular entity and can be measured reliably.