acct201 Chapter 1

The Value Chain

process where company adds value to an input in order to create a product that will generate revenue

Accounting

information system that reports on the economic activities and financial condition of a business or other organization by examining input (data), analyze the data, and then create an output (report) to help individuals understand a business

Creditors

borrowing money, loans, banks that have interest

Investor

equity, shares, stocks, return as dividends

Revenue

amount of income generated by a company’s business activities or operations

Net Income

amount of revenue left that the company actually “takes home”

Financial Accounting

accounting designed to provide information to external users (bank, determining whether to provide financial resources, and complying with relevant laws)

Managerial Accounting

accounting designed to provide information to internal users (cash flows, leverage, efficiency, costs)

Standards

rules utilized to analyze, frame, and present accounting information

Financial Accounting Standards Board (FASB)

organization who establishes accounting standards in the United States

Generally Accepted Accounting Principals (GAAP)

rules and standards that are used in the non-governmental accounting in the United States

Codified

readable and referencable

Liabilities and Stockholders Equity are examples of

claims

Common Stock and Retain Earnings are examples of

Stockholders Equity

Assets =

liabilities + common stock + retained earnings

Assets

resource that is owned or controlled by a business entity that is used to create value

Current Assets

assets that have liquidity in daily operations

Plant, Property, and Equipment

longer term assets used in production

Liabilities

claims on a company’s assets that come from creditors

Owner’s Equity

claims related to investment by owners

Common Stock

stock issued in exchange for assets to owners

Retained Earnings

amount of net income that is retained by a company

Accounting Event

an economic occurrence that changes an entity’s assets, liabilities, or equity

Transaction

event that involves transferring value or resource between to entities

Account

collection of detailed information about a specific area within the accounting equation

Double Entry Accounting

each event is entered twice with Debits and CreditsA

Accounting Period

span of time that a business uses to frame their financial statements (usually one year)

Financial Statements

summarization of accounting transactions and events during a predefined accounting period

Balance Sheet

• what is the financial position of this day?

• statement of a financial position at the end of an accounting period of other point in time

• shows concise and meaningful presentation of a companies assets, liabilities, and equity

• organized in terms of current and non-current assets and claims

• visualization of the accounting equation through summary data

Liquidity

measure of how fast you can covert an asset into cash