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ACCT110 Ch 1 & 2

Accounting in Business & Analyzing and Recording Transacations

TermDefinition
Accounting An information and measurement system that identifies, records and communicates relevant, reliable and comparable information about an organizations's business activities.
Accounting Equation Equality involving a company's assets, liabilities and equity. Also called "Balance Sheet Equation". ASSETS = LIABILITIES + EQUITY
Assets Resources a business owns or controls that are expected to provide current and future benefits to the business.
Audit Analysis and report of an organization's accounting system , its records, and its reports using various tests.
Auditors Individuals hired to review financial reports and information systems.
Balance Sheet Financial statement that lists types and dollar amounts of assets, liabilities and equity at a specific date.
Bookkeeping (Recordkeeping) The recording of transactions and events, either manually or electronically. (The two terms are interchangeable.)
Business Entity Assumption Principle that requires a business to be accounted for separately from its owners and from any other entity.
Common Stock Corporation's basic ownership share; also generically called capital stock.
Conceptual Framework A written framework to guide the development, preparation, and interpretation of financial accounting information.
Corporation Business that is a separate legal entity under State or Federal laws with owners called shareholders or stockholders.
Cost-Benefit Constraint Notion that only information with benefits of disclosure greater than the costs of disclosure need to be disclosed.
Cost Principle Accounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions.
Equity Owner's claim on the assets of a business; equals the residual interest in an entity's assets after deducting liabilities; also called net assets.
Ethics Beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior.
Events Happenings that both affect an organization's financial position and can be reliably measured.
Expanded Accounting Assets = Liabilities + Equity [Owner's Capital - Owner's Withdrawals + Revenues - Expenses]
Expense Recognition Principle Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses. Also called Matching Principle.
Expenses Outflows or using up of assets as part of operations of a business to generate sales.
External Transactions Exchanges of economic value between one entity and another entity.
External Users Users of accounting information who are not directly involved in running the organization.
Financial Accounting The area of accounting aimed at serving external users by providing them with general-purpose financial statements.
Financial Accounting Standards Board (FASB) Independent group of full-time members responsible for setting accounting rules.
Full Disclosure Principle Principle that prescribes financial statements (including notes) to report all relevant information about an entity's operations and financial condition.
Generally Accepted Accounting Principles (GAAP) Rules that specify acceptable accounting practices.
Going-Concern Assumption Principle that prescribes financial statements to reflect the assumption that the business will continue operating.
Income Statement Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses.
Internal Transactions Activities within an organization that can affect the accounting equation.
International Accounting Standards Board (IASB) Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS).
International Financial Reporting Standards (IFRS) IFRS are required or allowed by over 100 countries; IFRS is set by the IASB, which aims to develop a single set of global standards, to promote these standards, and to converge national and international standards globally.
Liabilities Creditor's claims on an organization's assets; involves a probable future payment of assets, products or services that a company is obligated to make due to past transactions or events.
Managerial Accounting The area of accounting that serves the decision-making needs of internal users.
Matching Principle Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses. Also called Expense Recognition Principle.
Materiality Constraint Prescribes that accounting for items that significantly impact financial statements and any inferences from them adhere strictly to GAAP.
Measurement Principle Accounting information is based on cost with potential subsequent adjustments to fair value; see also Cost Principle.
Monetary Unit Assumption Principle that assumes transactions and events can be expressed in money units.
Net Income Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit or earnings.
Net Loss Excess of expenses over revenues for a period.
Owner, Capital Account showing the owner's claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company's inception.
Owner Investment Assets put into the business by the owner.
Owner, Withdrawals Account used to record asset distributions to the owner (see also Withdrawals).
Partnership Unincorporated association of two or more persons to pursue a business for profit as co-owners.
Proprietorship Business owned by one person that is not organized as a corporation (also called Sole Proprietorship).
Return Monies received from an investment; often in percent form.
Return on Assets Ratio reflecting operating efficiency; defined as net income divided by average total assets for the period; also called return on assets or return on investment.
Revenue Recognition Principle The principle prescribing that revenue is recognized when earned.
Revenues Gross increase in equity from a company's business activities that earn income; also called sales.
Risk Uncertainty about an expected return.
Sarbanes-Oxley Act (SOX) Enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct, expands penalties for violations of Federal Securityies Laws.
Securities and Exchange Commission (SEC) Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public.
Shareholders/Stockholders Owners of a corporation (two terms are used interchangeably).
Shares/Stock Equity of a corporation divided into ownership units called shares or stock.
Sole Proprietorship Business owned by one person that is not organized as a corporation; also called Proprietorship.
Statement of Cash Flows A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing and financing activities.
Statement of Owner's Equity Report of changes in equity over a period; adjusted for increases (owner investment and net income) and for decreases (withdrawals and net loss).
Time Period Assumption Assumption that an organization's activities can be divided into specific time periods such as month, quarters or years.
Withdrawals Payment of cash or other assets from a proprietorship or partnership to its owner or owners; assets an owner(s) take from the company for personal use.
Account Record within an accounting system in which increases and decreases are entered and stored in a specific asset, liability, equity, revenue or expense.
Account Balance Difference between total debits and total credits (including the beginning balance) for an account.
Account Payable Liability created by buying goods or services on credit; backed by the buyer's general good credit standing.
Balance Column Account Account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry.
Chart of Accounts List of accounts used by a company; includes an identification number for each account.
Compound Journal Entry Journal entry that affects at least three accounts.
Credit Recorded on the right side. Any entry that decreases asset and expense accounts, and increases liability, revenue and most equity accounts. Abbreviated "Cr.".
Creditors Individuals or organizations entitled to receive payments.
Debit Recorded on the left side; an entry that increases asset and expense accounts, and decreases liability, revenue and most equity accounts. Abbreviated "Dr.".
Debt Ratio Ratio of total liabilities to total assets; used to reflect risk associated with a company's debts.
Debtors Individuals or organizations that owe money.
Double-Entry Accounting Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit.
General Ledger Record containing all accounts, with amounts, for a business.
Journal Record in which transactions are entered before they are posted to general ledger accounts; also called "book of original entry".
Journalizing Process of recording transactions in a journal.
Posting Process of transferring journal entry information to the ledger.
Posting Reference (PR) Column A column in journals in which individual account numbers are entered when entries are posted to those ledger accounts.
Source Documents Source of information for accounting entries that can be in either paper or electronic form; also called business papers.
T-Account Tool used to show the effects of transactions and events on individual accounts.
Trial Balance List of accounts and their balances at a point in time; total debit balances equal total credit balances.
General Journal All-purpose journal for recording the debits and credits of transactions and events.
Unearned Revenue Liability created when customers pay in advance for products or services; earned when the products or services are delivered.
Created by: slk