Basic Accounting Framework

External Financial Statement Users

Primarily Investors (Owners/stockholders) and Creditors

Accounting Rule-Makers

Organizations that establish accounting standards and practices

FASB

Financial Accounting Standards (5 members and privately funded)

SEC

Security Exchange Commission has authority to set accounting rules

IASB

International Accounting Standards Board

Asset

Economic Resource that will be used by a business to generate revenue

Liability

Obligations of a business to creditors to relinquish assets (cash in the bank), provide services, or accept other obligations

Owners’/Stockholders’ Equity

Residual interest of owners (what’s left over) in assets after deducting liabilities

Owners’/Stockholders’ Equity Detailed

Portion of assets remaining after the creditor’s claims have been satisfied. Represents the owners (or stockholders) claims to the assets.

Common Stock

Investor/Owner contributions to (or investment in) the business. Usually in the form of cash. For a corporation, stock is issued in exchange for cash from the investor/owner

Revenue

Providing goods and/or services resulting in an increase in assets or decrease in liabilities

Expense

Using assets and services in the process of generating revenue resulting in a decrease in assets or increase in liabilities

Net income

Revenues exceed expenses

Net loss

Expenses exceed revenues

Break even

Revenues = expenses

Dividends

Represents a return (or distribution) of earnings to the owners