Accounting

Accounting

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

Market

A group of people or entities organized to exchange items of value.

Profit

The financial gain after all expenses have been subtracted from revenue.

Investors

Individuals or entities that give organizations money in exchange for a portion of ownership.

Creditors

Entities that lend money to organizations, expecting repayment plus interest.

Accounting equation

Assets = Liabilities + Stockholders' equity.

Assets

Resources that a business uses to earn money.

Liabilities

Obligations that a business has to its creditors.

Stockholders' equity

The owners' claim on the assets of a company, including common stock and retained earnings.

Common stock

Commitments made to investors described in certificates.

Retained earnings

Increases to stockholders' equity from earnings.

Dividends

Distributions of assets to shareholders from earnings.

Balance sheet

A financial statement that reports a company’s assets, liabilities, and stockholders' equity as of a specific date.

Income statement

A financial report measuring profitability, showing the difference between revenue and expenses for an accounting period.

Statement of cash flows

A financial statement that reports a company’s cash inflows and outflows for an accounting period.

Liquidation

The process of selling a business's remaining assets and distributing the proceeds to creditors and investors.

FASB

Financial Accounting Standards Board, which establishes accounting standards.

GAAP

Generally Accepted Accounting Principles, the standard framework for financial reporting.

Temporary accounts

Accounts that are closed at the end of each accounting period and include revenues, expenses, and dividends.

Retained earnings account

An account that carries forward retained earnings from one accounting period to the next, considered a permanent account.

Transaction

An economic occurrence that involves transferring something of value between two entities.