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Chapter 1 Vocabulary

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