Chapter 1 Accounting in Business Vocabulary Flashcards

Vocabulary flashcards covering core accounting terminology, principles, assumptions, user categories, entity structures, and financial statements from Chapter 1.

Accounting

An information and measurement system that identifies, records, and communicates an organization’s business activities.

Debit

An accounting entry that either increases an asset or expense account, or decreases a liability or equity account.

Credit

An accounting entry that either increases a liability or equity account, or decreases an asset or expense account.

External Users

Users of accounting information who are not directly involved in running the organization, such as shareholders, lenders, external auditors, nonmanagerial employees, and regulators.

Internal Users

Users of accounting information who are directly involved in managing and operating an organization, such as purchasing managers, human resource managers, production managers, research and development managers, and marketing managers.

Private Accounting

An area of accounting where employees work directly for businesses.

Public Accounting

An area of accounting involving services offered to the public, such as auditing, taxation, and advisory services.

Data Analytics

A process of analyzing data to identify meaningful relations and trends.

Descriptive Analytics

A type of data analytics that summarizes and describes events from the past.

Diagnostic Analytics

A type of data analytics that reveals causes of events from the past.

Predictive Analytics

A type of data analytics that predicts likely events for the future.

Prescriptive Analytics

A type of data analytics that creates action plans to achieve a desired future.

Data Visualization

A graphical presentation of data to help people understand their significance and make informed business decisions.

Dashboard

A data visualization tool that includes charts, graphs, and other imaging to help users see important trends and relations.

Ethics

Beliefs that separate right from wrong and serve as accepted standards of good and bad behavior.

Fraud Triangle

A framework identifying three factors that exist for a person to commit fraud: opportunity, pressure, and rationalization.

Generally Accepted Accounting Principles (GAAP)

The concepts and rules that govern financial accounting, aiming to ensure information has relevance and faithful representation.

Relevance

A qualitative characteristic of accounting information where the information affects the decisions of users.

Faithful Representation

A qualitative characteristic of accounting information where the information accurately reflects business results.

Financial Accounting Standards Board (FASB)

An independent group that sets GAAP, operating under authority provided by the Securities and Exchange Commission (SEC).

Securities and Exchange Commission (SEC)

A U.S. government agency that oversees GAAP by companies that sell stock and debt to the public.

International Accounting Standards Board (IASB)

An independent body that issues International Financial Reporting Standards (IFRS) to identify preferred accounting practices globally.

Measurement Principle

Also called the cost principle, an accounting principle stating that accounting information is based on actual cost measured on a cash or equal-to-cash basis.

Revenue Recognition Principle

An accounting principle governing the timing of revenues, stating that revenue is recognized when goods or services are provided to customers and when earned.

Expense Recognition Principle

Also called the matching principle, an accounting principle stating that a company records its expenses in the same time period as the revenues they help generate.

Full Disclosure Principle

An accounting principle stating that a company reports details behind financial statements that would impact users' decisions in footnotes.

Going-Concern Assumption

An accounting assumption that a business is presumed to continue operating instead of being closed or sold.

Monetary Unit Assumption

An accounting assumption stating that transactions and events can be expressed in monetary, or money, units.

Time Period Assumption

An accounting assumption stating that the life of a company can be divided into distinct time periods, such as months and years.

Business Entity Assumption

An accounting assumption stating that a business is accounted for separately from other business entities, including its owner or owners.

Sole Proprietorship

A business entity owned by 1 owner, easy to set up, with no additional business income tax, unlimited owner liability, and no separate legal entity status.

Partnership

A business entity owned by 2 or more partners, easy to set up, with no additional business income tax, unlimited liability (jointly liable), and no separate legal entity status.

Corporation

A separate legal entity owned by shareholders, with additional corporate income tax, limited liability, and an indefinite business life.

Limited Liability Company (LLC)

A separate legal entity owned by members, offering limited liability, no additional business income tax, and an indefinite business life.

Cost-Benefit Constraint

An accounting constraint stating that information disclosed must have benefits to the user greater than the cost of providing it.

Materiality Constraint

An accounting constraint stating that only information that would influence the decisions of a reasonable person needs to be disclosed.

Basic Accounting Equation

The core accounting framework defined as $\text{Assets} = \text{Liabilities} + \text{Equity}$.

Income Statement

A financial statement that describes a company's revenues and expenses and computes net income or loss over a period of time.

Statement of Retained Earnings

A financial statement that explains changes in retained earnings from net income or loss and dividends over a period of time.

Balance Sheet

A financial statement that describes a company's financial position, including assets, liabilities, and equity, at a specific point in time.

Statement of Cash Flows

A financial statement that identifies cash inflows (receipts) and cash outflows (payments) over a period of time.

Environmental, Social, and Governance (ESG)

A framework depicting how companies behave as responsible stewards of the environment, principled members of society, and accountable leaders.

Return on Assets (ROA)

A profitability ratio stated as $\text{Return on Assets} = \frac{\text{Net Income}}{\text{Average Total Assets}}$.