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Accounting

Chapter 1 Vocabulary

TermDefinition
Accounting Is the process of planning, recording, analyzing and interpreting financial information
Accounting system Is a planned process designed to compile financial data and summarize the results in accounting records and reports
Financial statements Financial reports that summarize the financial condition and operations of a business
Net worth statement A formal report that shows what an individual owns, what an individual owes, and the difference between the two
Asset Anything of value that is owned
Liability An amount owed
Personal net worth The difference between personal assets and personal liabilities
Equity The difference between assets and liabilities
Ethics The principles of right and wrong that guide an individual in making decisions
Business Ethics The use of ethics in making business decisions
Service business A business that performs an activity for a fee
Proprietorship business owned by one person
Business plan formal written document that describes the nature of a business and how it will operate
Interest An amount paid for the use of money for a period of time
Compound Interest is interest paid on an original amount deposited in a bank plus any interest that has been paid.
GAAP The standards and rules that accountants follow while recording and reporting financial activities are commonly referred to as generally accepted accounting principles
Equities Financial rights to the assets of a business
Owners equity The amount remaining after the value of all liabilities is subtracted from the value of all assets
Accounting equation The equation showing the relationship among assets, liabilities, and owner’s equity
Transaction Accountants call any business activity that changes assets, liabilities, or owner’s equity
Account A record that summarizes all the transactions pertaining to a single item in the accounting equation
Account title The name given to an account is called
Account balance The difference between the increases and decreases in an account
Capital account An account used to summarize the owner’s equity in a business
Sale on account A sale for which payment will be received at a later date
Expense the cost of goods or services used to operate a business
Withdrawals Assets taken from the business for the owner’s personal use
Creditor A person or business to whom a liability is owed
Revenue An increase in equity resulting from the sale of goods or services
Created by: nandinikaushal