Accounting Definitions 200 1-3

Assets

Economic resources that will be used by a business to produce revenue.

Common Stock

A corporate stock that shows ownership in a company.

Liabilities

A business can borrow assets from creditors. In accounting terms, the obligations a business has to its creditors are called

Retained Earnings

If a business retains the assets, it commits to use those assets for the benefit of the stockholders, this increases, it is called

Stockholders

Owners of a corporation

Stockholder’s Equity 

Interest in corporation assets owned by stockholders 

Formula: Total Assets - Total Liabilities = Stockholders' Equity 

Accounting

is an information system that reports on the economic activities and financial condition of a business or other organization.

Market

is a group of people or entities organized to exchange items of value.

Accrual Accounting

Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands, is commonly called

Debit

The left side of the vertical bar is the increase side. Debit decrease liabilities and stockholders’ equity.

Credit

The right side of the vertical bar is the decrease side. Credits increase liabilities and stockholders’ equity

Asset Exchange Transactions

involve trading one asset for another asset. One asset account increases; the other decreases. The total amount of assets remains unchanged.

Dividend

If a business transfers some or all of its earned assets to owners, the transfer is called a

Creditors and Owners

1. Individual or organization that has loaned goods or services to a business ( specifically liabilities ) 

2. A specific type of investor that directly invests in a business and holds common stock and retained earnings

Liquidates

Dividing up and organizations assets and returning them to the resource providers ( meaning Creditors are first for their claims and Owners get the remaining assets )

=L+SE

Measured in Assets (Right Side)

A=

Measured in Cash (Left Side)

Creditors & Owners & Earning Activities

Liabilities, Common Stock, Retained Earnings

Three Primary Source of Assets

(1) investments by owners (issue of stock), (2) borrowing from creditors, and (3) earnings activities.