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Accounting Ch.2

TermDefinition
Financial Statements the end product of a process that starts with transactions between the entity and other organizations/individuals.
Transactions interchange between entities that are accounted for and reflected in financial statements
Accounts a record in which transactions affecting individual assets, liabilities, stockholders equity, revenues, and expenses are recorded.
Financial Review notes that explain the accounting policies and the financial statements
Proprietorship a form of organization indicating individual ownership without the limited liability and other features of a corporation.
Partnership a form of organization indicating ownership by two or more individuals or corporations without the limited liability and other features of a corporation.
Corporation a form of organization in which ownership is evidenced by shares of stock owned by stockholders; its features, such as limited liability of the stockholders, makes this the principal form of organization for most business activity.
Fiscal Year the annual period used for reporting to owners.
Balance Sheet the financial statement that is a listing of the entity’s assets, liabilities, and stockholders’ equity at a point in time.
Statement of Financial System another term for balance sheet; a listing of the entity’s assets, liabilities, and stockholders’ equity at a point in time
Accounting equation/ balance sheet equation Assets = Liabilities + Stockholders Equity (A= L + SE). The fundamental relationship represented by the balance sheet and the foundation of the bookkeeping process.
Assets probable future economic benefits obtained or controlled by an entity as a result of past transactions or events
Liabilities probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Stockholders Equity the stockholder’s claim in the assets of the entity. Sometimes called the owners’ equity or net assets; the difference between assets and liabilities.
Net Worth another term for net assets or stockholders equity or owners’ equity, but not as appropriate because the term worth might be misleading.
Cash an asset on the balance sheet that represents the amount of cash on hand and the balances in bank accountant maintained by the entity.
Accounts Receivable an asset representing a claim against another entity, usually arising from selling goods or services on credit
Accumulated Depreciation the sum of the depreciation expense that has been recognized over time. It is a contra asset—an amount that is subtracted from the cost of the related asset on the balance sheet.
Accounts Payable a liability representing an amount payable to another entity, usually because of the purchase of merchandise or services on credit.
Accrued Liabilities amounts that are owned by an entity on the balance sheet date.
Accrual accounting accounting that recognizes revenues and expenses as they occur, even though the cash receipt from the revenue or the cash disbursement related to the expense may occur before or after the event that causes revenue or expense recognition.
Additional Paid in Capital the excess of the amount received from the sale of stock over the par values of shares sold.
Common Stock the class of stock that represents residual ownership of the corporation.
Corporation - a form of organization in which ownership is evidenced by shares of stock owned by stockholders; its features, such as limited liability of the stockholders, make this the principal form of organization for most business activity.
Cost of Goods Sold cost of merchandise sold during the period; an expense deducted from net sales to arrive at gross profit. Frequently used synonyms are cost of sales and cost of products sold.
Current Assets cash and those assets that is likely to be converted to cash or used to benefit the entity within one year of the balance sheet date
Current Liabilities those liabilities due to be paid within one year of the balance sheet due date.
Depreciation the accounting process of recognizing the cost of an asset that is used up over its useful life to the entity
Depreciation Expense the expense recognized in a fiscal period for the depreciation of an asset.
Dividend a distribution of earning to the stockholders of a corporation.
Earnings per share of common stock outstanding net income available to the common stockholders divided by the average number of shares of common stock outstanding during the period. Usually referred to simply as EPS.
Equity the ownership right associated with an asset.
Expenses outflows or other using up of assets or incurring liability during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s major operations.
Gains increases in net assets from incidental transactions that are not revenues or investments by owners
Going Concern Concept a presumption that the entity will continue in existence for the indefinite future.
Gross Profit net sales less cost of goods sold.
Income from Operations the difference between gross profit and operating expenses.
Income Statement the financial statement that summarizes the entity’s revenues, expenses, gains, and losses for a period of time and thereby reports the entity’s results of operations for that period of time.
Losses decreases in net assets from incidental transactions that are not expenses or distributions to owners.
Matching concept the concept that expenses incurred in generating revenues should be deducted from revenues earned during the period for which results are being reported.
Net Assets the difference between assets and liabilities; also referred to ask stockholders equity/ owners’ equity.
Net Income the excess of revenues and gains over expenses and losses for a fiscal period.
Net Sales gross sales, less sales discounts and sales returns and allowances
Opportunity Cost an economic concept relating to income forgone because an opportunity to earn income was not pursued.
Owners Equity the owners claim in the assets of the entity. Sometimes called net assets.
Paid in Capital the amount invested in the entity by the stockholders.
Par Value an arbitrary value assigned to a share of stock when the corporation is organized. Sometimes used to refer to the state value or face amount of security.
Profit the excess of revenues and gains over expenses and losses for a fiscal period; another term is net income.
Profit and Loss statement another term for income statement.
Statement of changes in retained earnings the financial statement that summarizes the changes during a fiscal period in retained earnings. This information may be included in the statement of changes in stockholder’s equity
Statement of changes in stockholder’s equity the financial statement that summarizes the changes during a fiscal period in capital stock, additional paid-in capital, retained earnings and other elements of stockholders equity.
Statement of Earnings another term for income statement; it shows the revenues, expenses, gains, and losses for a period of time and thereby the entity’s results of operations for that period of time.
Statement of Operations another term for income statement
Stock the evidence showing ownership of a corporation
Stockholders the owners of a corporation’s stock; sometimes called shareholders.
Subsidiary a corporation whose stock is more than 50% owned by another corporation.
Created by: acorso3
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