Financial Record Keeping Chapter 1-3 Terms

Accounting

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.

Accounting Standards Codification

The source of authoritative U.S. GAAP.

Accounting Standards Update

Changes to Accounting Standards Codification are communicated through Accounting Standards Update covering approximately 90 topics.

Accounting System

A process design to accumulate classify and summarize financial data.

Auditing

The review of financial statements to assess their fairness and adherence to generally accepted accounting principles.

Auditor’s Report

An independent accountant’s review of a firms financial statements.

Certified Bookkeeper (CB)

A designation that assures an individual possesses the level of knowledge and skill needed to carry out all key functions through the adjusted trial balance, including payroll.

Certified Public Accountant (CPA)

An independent accountant who provides accounting services to the public for a fee.

Corporation

A publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business.

Creditor

One to whom money is owed.

Discussion Memorandum

An explanation of a topic under consideration by the Financial Accounting Standards Board.

Economic Entity

A business or organization whose major purpose is to produce a profit for its owners.

Entity

Anything having its own separate entity, such as an individual, a town, a university, or a business.

Exposure Draft

A proposed solution to a problem being considered by the Financial Accounting Standards Board.

Financial Statements

Periodic reports of a firms financial position or operating results.

Fraud

Intentional or reckless acts that result in confiscation or a firms assets or the misrepresentation of the firms accounting data.

Generally Accepted Accounting Principles (GAAP)

Accounting Standards developed and applied by professional accountants.

Governmental Accounting

Accounting work performed for a federal, state, or local governmental unit.

Internal Control

A company’s policies and procedures to safeguard assets, ensure reliability of accounting data, and promote compliance with management policies and applicable laws.

International Accounting

The study of accounting principles used by different countries.

Management Advisory Services

Services designed to help clients improve their information systems or their business performance.

Managerial Accounting

Accounting work carried on by an accountant employed by a single business in industry; the branch of accounting that provides financial information about business segments, activities, or products.

Partnership

A business entity owned by two or more people who carry on a business for profit and who are legally responsible for the debts and taxes of the business.

Public Accountants

Members of the firms that perform accounting services for other companies.

Separate Entity Assumption

The concept that a business is separate from its owners; the concept of keeping a firms financial records separate from the owner’s personal financial records.

Social Entity

A nonprofit organization, such as city, public school, or public hospital.

Sole Proprietorship

A business entity owned by one person, who is legally responsible for the debts and taxes of the business.

Statements of Financial Accounting Standards

Accounting principles established by the Financial Accounting Standards Board.

Stock

Certificates that represent ownership of a corporation.

Stockholders

The owners of a corporation; also called shareholders.

Tax Accounting

A service that involves tax compliance and tax planning.

Accounts Payable

Amounts a business must pay in the future.

Accounts Receivable

Claims for future collection from customers.

Assets

Property owned by a business

Balance Sheet

A formal report of a business’s financial condition on a certain date; reports the assets, liabilities, and owner’s equity of the business.

Break Even

A point at which revenue equals expenses.

Business Transaction

A financial event that changes the resources of a firm.

Capital

Financial investment in business, equity.

Equity

An owner’s financial interest in a business.

Expense

An outflow of cash, use of other assets. or incurring of a liability.

Fair Market Value

The current worth of an asset or the price the asset would bring if sold on the open market.

Fundamental Accounting Equation

The relationship between assets and liabilities plus owner’s equity.

Income Statement

A formal report of business operations covering a specific period of time; also called a profit and loss statement or a statement of income and expenses.

Liabilities

Debts or obligations of a business.

Net Income

The result of an excess of revenue over expenses.

Net Loss

The result of an excess of expenses over revenue.

On Account

An arrangement to allow payment at a later date; also called a charge account or open-account credit.

Owner’s Equity

The financial interest of the owner of a business; also called proprietorship or net worth.

Revenue

An inflow of money or other assets that results from the sales of good or services or from the use of money or property; also called income.

Statement of Owner’s Equity

A formal report of changes that occurred in the owner’s financial interest during a reporting period.

Withdrawals

Funds taken from the business by the owner for personal use.

Account Balance

The difference between the amounts recorded on the two sides of an account.

Accounts

Written records of the assets, liabilities, and owner’s equity of a business.

Chart of Accounts

A list of the accounts used by a business to record its financial transactions.

Classification

A means of identifying each account as an asset, liability, or owner’s equity.

Credit

An entry on the right side of an account.

Debit

An entry on the left side of an account.

Double-Entry System

An accounting system that involves recording the effects of each transaction as debits and credits.

Drawing Account

A special type of owner’s equity account set up to record the owner’s withdrawal of cash from the business.

Footing

A small pencil figure written at the base of an amount column showing the sum of the entries in the column.

Normal Balance

The increase side of an account.

Permanent Account

An account that is kept open from one accounting period to the next.

Slide

An accounting error involving a misplaced decimal point.

T Account

A type of account, resembling a T, used to analyze the effects of a business transaction.

Temporary Account

An account whose balance is transferred to another account at the end of an accounting period.

Transposition

An accounting error involving misplaced digits in a number.

Trial Balance

A statement to test the accuracy of total debits and credits after transactions have been recorded.