Accounting 1

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Unit 1

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45 Terms

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Accounting

The process of planning, recording, analyzing, and interpreting financial information

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Accounting system

A planned process designed to compile financial data and summarize the results in accounting records and reports.

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Financial statements

Financial reports that summarize the financial condition and operations of a business

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Net worth statement

A formal report that shows what an individual owns, owes, and the difference between the two

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Asset

Anything of value thats owned

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Liability

An amount owed

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Personal net worth

The difference between personal assets and personal liabilities

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Equity

The difference between assets and liabilities

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Ethics

The principles of right and wrong that guide an individual in making decisions

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Business ethics

The use of ethics in making business decisions

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Service business

A business that performs an activity for a fee

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Proprietorship

A business owned by one person

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Business plan

A formal written document that describes the nature of a business and how it will operate

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GAAP

Generally Accepted Accounting Principles. The standards and rules accountants follow while recording and reporting financial activities

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Equities

Financial rights to the assets of a business

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Owner’s equity

The amount remaining after the value of all liabilities is subtracted from the value of all assets

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Accounting equation

The equation showing the relationship among assets, liabilities, and owners equity.

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Transaction

Any business activity that changes assets, liabilities, or owner’s equity

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Account

A record that summarizes all the transactions pertaining to a single item in the accounting equation

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Account title

The name given to an account

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Account balance

The difference between the increases and decreases in an account

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Capital account

An account used to summarize the owners equity in a business

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Creditor

A person or business to whom a liability is owed

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Revenue

Increase in equity resulting from the sale of goods or services

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Sale on account

A sale for which payment will be received at a later date

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Expense

The cost of goods or services used to operate a business

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Withdrawals

Assets taken from the business for the owner’s personal use

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