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Prin. Acct. CH. 1

Terms and Definitions

QuestionAnswer
Accounting The information system that identifies ,records, and communicates the economic events of an organization to interested users.
Assets Resources a business owns.
Balance Sheet A financial statement that reports the assets, liabilities and owner's equity at a specific time.
Basic Accounting Equation Assets = Liabilities + Owner's Equity
Corporation A busines organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock.
Cost Principle An accounting principle that states that companies should record assets at their cost.
Drawings Withdrawal of cash or other assets from an unincorporated business for the personal use of the owner(s).
Economic Entity Assuption An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.
Ethics The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair.
Expenses The cost of assets consumed or services used in the process of earning revenue.
Financial Accounting The field of accounting that provides economic and financial information for investors, creditors and other external users.
Financial Accounting Standards Board (FASB) A private organization that establishes generally accepted accounting principles.
Generally Accepted Accounting Principles (GAAP) Common standards that indicate how to report economic events.
Income Statement A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time.
International Accounting Standards Board (IASB) An accounting standard-setting body that issues standards adopted by many countries outside of the United States.
Investments by Owner The assets an owner puts into the business.
Liabilities Creditor claims on total assets.
Managerial Accounting The field of accounting that provides internal reports to help users make decisions about their companies.
Monetary Unit Assumption An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money.
Net Income The amount by which revenues exceed expenses.
Net Loss The amount by which expenses exceed revenues.
Owner's Equity The ownership claim on total assets.
Owner's Equity Statement A financial statement that summarizes the changes in owner's equity for a specific period of time.
Partnership A business owned by two or more persons associated as partners.
Proprietership A business owned by one person.
Revenues The gross increase in owner's equity resulting from business activities entered into for the purpose of earning income.
Sarbanes-Oxley Act of 2002 (SOX) Law passed by Congress in 2002 intended to reduce unethical corporate behavior.
Securities and Exchange Commission (SEC) A governmental agency that requires companies to file financial reports in accordance with generally accepted accounting principles.
Statement of Cash Flows A financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time.
Transactions The economic events of a business that are recorded by accountants.
Auditing The examination of financial statements by a certified public accountant in order to express an opinion as to the fairness of the representation
Forensic Accounting An area of accounting that uses accounting, auditing, and investigative skills to conduct investigations into theft and fraud
Management Consulting An area of public accounting ranging from development of accounting and computer systems to support services for marketing projects and merger and acquisition activities.