Chapter 1 Accounting Flashback Vocabulary

A comprehensive vocabulary review set created from Chapter 1 accounting lecture notes, covering core concepts, principles, equations, forms of business, transaction types, journal entries, ledgers, and financial statements.

Accounting (AAA Definition)

The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.

Accounting (ASC Definition)

A service activity whose function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.

Purpose of Accounting

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

Generally Accepted Accounting Principles (GAAP)

A common set of rules, standards, and procedures that govern how financial statements are prepared and presented.

Cost Principle

An accounting principle requiring that assets should be recorded at original cost or acquisition cost.

Objectivity Principle

An accounting principle requiring that accounting records be based on reliable and verifiable data taken from source documents as evidence of a transaction.

Materiality Principle

An accounting principle dictating that practicability rules over theory in determining the valuation of an item.

Matching Principle

The combined concept of the Revenue Recognition principle and Expense Recognition principle.

Consistency Principle

An accounting principle requiring accounting methods and procedures to be applied on a uniform basis from period to period to achieve comparability.

Adequate Disclosure Principle

An accounting principle requiring financial statements to be free from any material misstatement or to make proper disclosures if present.

Core Accounting Equation

A fundamental equation stating that total assets are equal to the sum of liabilities (creditors' equity) and owner's equity ($\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$).

Expanded Accounting Equation

A detailed version of the basic accounting equation breaking down owner's equity into: contributed capital + revenues or income - expenses - drawings or withdrawal.

Assets

Resources or properties that the business owns.

Liabilities

Debts or financial obligations that the business owes to others.

Owner's Equity

The capital or net worth in the business.

Sole Proprietorship

The simplest form of business organization where capital is owned and provided by only one person called the proprietor.

Partnership

A business owned and operated by two or more persons (partners) who bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits.

Corporation

An artificial being created by operation of law, having the rights of succession and powers, attributes, and properties expressly authorized by law.

Cooperative

A duly registered association of persons with a common bond of interest who voluntarily join to achieve a lawful common social or economic end.

Service Concern

A business classification that derives its income from services rendered to clients.

Merchandising

A business classification engaged in buying goods or commodities or finished products and selling them at a profit.

Manufacturing

A business classification engaged in buying raw materials and supplies to convert them into finished products for sale at a profit.

Accounting Cycle

The various steps of the accounting process passed through in a repetitive manner from the start up to the end of every accounting period.

External Transactions

Exchanges of value between the business and outside parties that yield changes in the accounting equation.

Internal Transactions

Exchanges within an entity that have a measurable effect on the accounting equation.

Transaction Analysis

The process of studying a transaction to determine its economic effect on the business in terms of the accounting equation.

Source Documents

Written evidence of a transaction used by the accounting department as support for entries recorded.

Journal

A chronological record of transactions entered into by a business, also known as the book of original entry.

General Journal

The most basic form of journal used to record all types of transactions.

Special Journal

A journal used to record a specific type of frequently occurring transactions.

Journalizing

The process of recording transactions for the first time in a journal.

Sales Journal

A special journal used to record only sales on credit.

Cash Receipts Journal

A special journal used to record receipts of cash from any source.

Purchase Journal

A special journal used to record purchases on credit.

Cash Disbursements Journal

A special journal used to record payments of cash for any purpose.

Simple Entry

A journal entry affecting only two accounts (one debit and one credit).

Compound Entry

A journal entry involving three or more accounts with multiple debits or credits.

Opening Entry

The first entry made in the general journal recording initial investments of a proprietor or beginning account balances for a new accounting period.

Adjusting Entry

A year-end journal entry used to update account balances at the end of an accounting period for accruals or prepayments.

Reversing Entry

A general journal entry made on the first day of the next accounting period that is the exact reverse of a previous adjusting entry.

Recurring Entry

A journal entry repeated regularly for identical monthly or weekly transactions.

Closing Entries

Year-end journal entries used to close the balance of temporary accounts (REDIS) to zero.

Correcting Entries

Journal entries used to correct erroneous entries made during the current accounting period.

General Ledger

A group of accounts containing all accounts needed to prepare financial statements, also called the book of final entry.

Account

A record in the general ledger used to collect and store debit and credit amounts.

Chart of Accounts

A listing of all the accounts and their account numbers in the ledger.

Subsidiary Ledger

A device used in storing details of certain general ledger controlling accounts.

Trial Balance

A list of accounts and their balances at a given time used to prove that debits equal credits after posting.

Trial Balance of Totals

A trial balance listing total debit footings and total credit footings of each account posted in the general ledger.

Trial Balance of Balances

A trial balance listing only the balance of each open account in the ledger.

Prepaid Expenses

Charges or debits recorded in the books for goods or services that are not to be used up or consumed currently.

Unearned Income

Credits recorded in the books for cash received in advance from customers prior to delivery of goods or services.

Accrued Expenses

Expenses incurred by the business but not yet paid when the accounting period ends.

Accrued Income

Amounts earned but not yet received in cash or recorded until a subsequent period.

Depreciation

The gradual decrease in value of fixed assets due to use, inadequacy, or obsolescence, allocated over estimated useful life.

Worksheet

A multicolumn form used to facilitate the preparation of adjusting entries and financial statements.

Functional Presentation

An income statement format that classifies expenses according to their function as part of cost of sales, selling activities, administrative activities, or other activities.

Natural Presentation

An income statement format where expenses are aggregated according to their nature rather than allocated among functions.

Post-Closing Trial Balance

A trial balance prepared from the ledger after closing entries are posted, listing permanent accounts and proving equality of balances carried forward.