A business that performs an activity for a fee is called a service business.

A proprietorship is a business owned by one person.

A business plan is a formal written document that describes the nature of a business and how it will operate.

An amount paid for the use of money for a period of time is called interest.

Compound interest is interest paid on an original amount deposited in a bank plus any interest that has been paid. In other words, the original money deposited earns interest, and then the interest earns additional interest.

The standards and rules that accountants follow while recording and reporting financial activities are commonly referred to as generally accepted accounting principles or GAAP.

Financial rights to the assets of a business are called equities.

The amount remaining after the value of all liabilities is subtracted from the value of all assets is called owner’s equity.

The equation showing the relationship among assets, liabilities, and owner’s equity is called the accounting equation.

Accountants call any business activity that changes assets, liabilities, or owner’s equity a transaction.

A record that summarizes all the transactions pertaining to a single item in the accounting equation is called an account.

The name given to an account is called an account title.

The difference between the increases and decreases in an account is called the account balance.

An account used to summarize the owner’s equity in a business is called a capital account.

A person or business to whom a liability is owed is called a creditor.

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Ch. 1.2 Vocab

Vocab

Term	Definition
Service Business	A business that performs an activity for a fee is called a service business.
Proprietorship	A proprietorship is a business owned by one person.
Business Plan	A business plan is a 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 is called interest.
Compound Interest	Compound interest is interest paid on an original amount deposited in a bank plus any interest that has been paid. In other words, the original money deposited earns interest, and then the interest earns additional interest.
GAAP	The standards and rules that accountants follow while recording and reporting financial activities are commonly referred to as generally accepted accounting principles or GAAP.
Equities	Financial rights to the assets of a business are called equities.
Owner's Equity	The amount remaining after the value of all liabilities is subtracted from the value of all assets is called owner’s equity.
Accounting Equation	The equation showing the relationship among assets, liabilities, and owner’s equity is called the accounting equation.
Transaction	Accountants call any business activity that changes assets, liabilities, or owner’s equity a transaction.
Account	A record that summarizes all the transactions pertaining to a single item in the accounting equation is called an account.
Account Title	The name given to an account is called an account title.
Account Balance	The difference between the increases and decreases in an account is called the account balance.
Capital Account	An account used to summarize the owner’s equity in a business is called a capital account.
Creditor	A person or business to whom a liability is owed is called a creditor.

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