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Accounts Payable

A liability account showing amounts a business owes to suppliers or creditors for goods and services purchased on credit.

Accounts Receivable

An asset account showing amounts owed to a business by customers for goods or services provided on credit.

Accounting

The process of recording, classifying, summarizing, and interpreting financial transactions to provide information for decision-making.

Accounting Assumptions

Basic ideas that underlie the preparation of financial statements, such as going concern, monetary unit, and time period.

Accounting Equation

The foundation of accounting: Assets = Liabilities + Equity.

Accounting Principles

General guidelines and rules for financial reporting, such as revenue recognition and expense recognition.

Accounting Standards

Authoritative standards that guide financial accounting and reporting practices.

Accounting Standards Codification

An organized collection of all authoritative U.S. GAAP by the FASB.

Accounting Standards Updates

Official updates from FASB that amend or clarify the Accounting Standards Codification.

Arm’s-Length Transactions

Transactions between independent parties acting in their own best interests.

Assets

Resources owned by a business that are expected to provide future economic benefits.

Balance Sheet

A financial statement that shows a company’s assets, liabilities, and equity at a specific point in time.

Business

An organization engaged in producing or selling goods or services for profit.

Business Entity Assumption

The principle that a business is treated as separate from its owner(s) for accounting purposes.

Business Transaction

An economic event that affects the financial position of a business and can be reliably recorded.

Certified Public Accountants (CPAs)

Professionals licensed to provide auditing, tax, and consulting services.

Common Stock

Equity securities representing ownership in a corporation.

Comparability

The quality of financial information that allows users to compare it across different companies and time periods.

Corporation

A legal business entity separate from its owners, offering limited liability and transferable ownership.

Cost Principle

The accounting principle requiring assets to be recorded at their purchase price (historical cost).

Data Analytics

The process of analyzing data sets to uncover useful financial or business insights.

Dividends

Distributions of earnings to shareholders, usually in the form of cash or stock.

Earnings

The net income or profit of a business during a period.

Equity

The residual interest in the assets of a business after liabilities are deducted.

Ethics

Principles of right and wrong guiding accountants in reporting and decision-making.

Expense Recognition Principle

The principle that expenses should be recorded when incurred to generate revenue.

Expenses

Costs incurred in the process of earning revenue.

Faithful Representation

The quality of information that is complete, neutral, and free from error.

Fees Earned

Revenue earned by providing services to customers.

Financial Accounting

Accounting focused on preparing financial statements for external users.

Financial Accounting Standards Board (FASB)

The U.S. organization that establishes accounting standards (GAAP).

Financial Statements

Reports (e.g., balance sheet, income statement) summarizing a company’s financial performance and position.

Financing Activities

Cash flows related to borrowing, repaying debt, or issuing equity.

Fiscal Year

A 12-month accounting period that may or may not align with the calendar year.

Generally Accepted Accounting Principles (GAAP)

Standard framework of accounting rules and procedures in the U.S.

General-Purpose Financial Statements

Statements intended to meet the needs of many external users.

Going Concern Assumption

The assumption that a business will continue operating in the foreseeable future.

Historical Cost Principle

The idea that assets are recorded at the amount paid for them, not current market value.

Income Statement

A financial statement showing revenues, expenses, and net income over a period.

Interest Revenue

Income earned from lending money or investments that generate interest.

International Accounting Standards Board (IASB)

The global organization developing International Financial Reporting Standards (IFRS).

Investing Activities

Cash flows related to buying and selling long-term assets or investments.

Liabilities

Obligations a business owes to outsiders, such as debts or accounts payable.

Limited Liability Company (LLC)

A business structure combining partnership tax benefits with limited liability for owners.

Managerial Accounting

Accounting focused on providing information for internal management decision-making.

Manufacturing Businesses

Businesses that produce goods to sell, rather than providing services or reselling.

Measurement Principle

Accounting principle that requires amounts to be based on objective, verifiable evidence.

Monetary Unit Assumption

The assumption that transactions are recorded in a stable currency.

Natural Business Year

A fiscal year that ends when business activities are at a seasonal low.

Net Income

Excess of revenues over expenses during a period.

Net Loss

Excess of expenses over revenues during a period.

Operating Activities

Cash flows from primary revenue-generating activities of a business.

Owner’s Equity

The owner’s claim on the assets of a business after liabilities are subtracted.

Partnership

A business owned by two or more individuals sharing profits and responsibilities.

Prepaid Expenses

Assets representing payments made in advance for goods or services.

Private Accounting

Accounting work done for a single company (internal role).

Profit

Financial gain; when revenues exceed expenses.

Proprietorship

A business owned by one individual.

Public Accounting

Accounting services offered to the public, including auditing and consulting.

Public Company Accounting Oversight Board (PCAOB)

Regulator overseeing auditors of public companies.

Ratio of Liabilities to Stockholders’ Equity

A measure of financial leverage: Total Liabilities ÷ Stockholders’ Equity.

Relevant

The quality of financial information that makes a difference in decision-making.

Rent Revenue

Revenue earned from renting property or equipment.

Report Form

A balance sheet format that lists assets on top and liabilities/equity below.

Retail Businesses

Businesses that purchase products and sell them to consumers.

Retained Earnings

Profits kept in the business instead of distributed as dividends.

Retained Earnings Statement

Statement showing changes in retained earnings over a period.

Revenue

Income earned from normal business operations, such as sales or services.

Revenue Recognition Principle

Revenue is recorded when earned, not necessarily when cash is received.

Sales

Revenue from selling goods to customers.

Sarbanes-Oxley Act (SOX)

2002 U.S. law to increase transparency, accountability, and oversight of financial reporting.

Securities and Exchange Commission (SEC)

U.S. government agency overseeing securities markets and protecting investors.

Service Businesses

Businesses that provide services rather than tangible goods.

Statement of Cash Flows

Report showing cash inflows and outflows from operating, investing, and financing activities.

Statement of Stockholders’ Equity

Report showing changes in equity accounts, including retained earnings and common stock.

Stockholders’ Equity

Owners’ claim on the assets of a corporation after liabilities.

Timeliness

Information provided in time to influence decisions.

Time Period Assumption

The assumption that financial reporting can be divided into periods (e.g., months, quarters).

Understandability

Quality of information that makes it clear and comprehensible to users.

Verifiability

Quality of information that can be checked and confirmed by independent parties.