Accounting Vocab Unit 1

Accounting

The information infrastructure of the firm/economy that permits it to achieve its objectives.

Accounting and information systems function

The function that is responsible for providing useful information to the other functional areas and external parties.

Accounting equation

Assets equal liabilities plus owner’s equity

Accrual basis of accounting

A system in which income is measured as the difference between the sale (revenues) earned and the expenses incurred during the period, regardless of when cash is paid or received.

Balance sheet

The financial statement that designed to show the ending amounts of the company’s assets, liabilities, and owner’s equity.

Business

The exchange of goods or services on an arm’s-length basis that results in mutual benefit for both parties involved.

Business entity concept

The concept that requires an accounting system to reflect only information about economic events that pertain to a particular entity.

Cash basis accounting

A system in which income is measured as the difference between the cash received from customers and the cash paid to employees and other suppliers of goods and services.

Corporation

A business entity that is legally separate and distinct from its owners.

Current asset

An asset likely to be used or consumed within one year.

Current liability

A liability likely to be paid or otherwise discharged within one year.

Current ratio

A measure of company liquidity; the relationship between current assets and current liabilities.

Debt-to-equity ratio

A measure of company solvency and its ability to meet its long-term obligations.

Double Taxation

A situation in which the profits earned by the corporation are taxed twice - once at the business level and again at the owner level if the profits are distributed as dividends.

Expense

An amount incurred from using resources or services in the effort to generate revenue.

finance function

The function that is responsible for managing the financial resources of the business.

Financial Accounting Standards Board (FASB)

The group the SEC holds responsible for determining accounting standards in the United States

Financial statements

Statements prepared to communicate the results of business activities to interested users.

Flexibility strategy

A strategy in which a company strives to adapt to changing market conditions by developing new products/services, markets, and technologies.

Generally accepted accounting principles (GAAP)

The set of reporting standards applicable to all US companies that issue financial reports for external users.

Going concern concept

The concept that assumes that, absent from any information to the contrary, the business entity will continue into the foreseeable future.

Human resource function

The function that is responsible for ensuring that capable employees are given opportunities to succeed in a safe work environment.

Income statement

The financial statement designed to show the net income of the company for a period of time.

International Financial Reporting Standards (IFRS)

The set of global reporting standards for the preparation of public financial statements.

Just-In-Time (JIT)

A philosophy that stipulates products should be received by customers just as they are needed and, in the quantities needed.

Liability

The obligation to transfer economic resources to suppliers of goods and services at some point in the future.

Limited liability

A situation in which the money invested in a corporation is at risk, but investors’ personal possessions are not at risk if the business fails.

Limited liability company (LLC)

Eliminates the impact of unlimited liability for all the owners, does not limit the number of owners as required by the S-corporation, and does not limit participation in the management of the firm like limited partnerships.

Limited liability partnership (LLP)

A partnership in which the individual partners are liable only for their own actions and the actions of those individuals under their control.

Limited partnership

A partnership composed of one or more general partners and one or more limited partners; only the general partners’ personal possessions are at risk if the business should fail.

Long-term assets

See noncurrent assets; an asset that is likely to provide economic benefits for more than one year.

Long-term liability

See noncurrent liability; an obligation that extends beyond one year.

Manufacturing firm

A business organized to convert raw materials into finished goods.

Marketing function

The function of business that determines the wants and needs of consumers and devises a system for distributing the goods and services customer’s demand.

Merchandising company

A business that obtains and distributes goods to customers.

Monetary unit concept

The concept that asserts money is the common measurement unit of economic activity.

Mutual agency

A situation whereby each partner has the power to act for all, and legally obligate, other partners.

Net assets

Asset minus liabilities.

Net income

A company’s total revenue less it’s total expenses for a period of time.

Noncurrent asset

An asset that is likely to provide economic benefits for more than one year.

Noncurrent liability

An obligation that extends beyond one year.

Lead time

The amount of time that elapses from when a customer places an order until the customer receives that order.

Owner’s equity

Represents the claims on the business to transfer the residual interest (net assets of the business) to the owners.

Partnership

A business owned by two or more individuals whose personal possessions are at risk if the business fails.

Partnership Agreement

An agreement that outlines the rights and responsibilities of each partner.

Periodicity concept

The concept that requires that the success or failure of the business be determined at regular intervals.

Product life cycle

The time span from the conception of the product until it is no longer demanded by consumers.

Production and operations functions

The function that is responsible for planning, directing, and controlling the operations of the business.

Return on sales ratio

A measure of company profitability; the relationship between net income and sales.

Revenue

An amount earned from rendering services or transferring resources to customers

S-corporation

A small business corporation owned by no more than 100 individuals; its profits are taxed at the individual level rather than the corporate level.

Service firm

A business that exists to provide services such as loaning money, finding investors, and other services for which it charges fees.

Sole proprietorship

A business owned by one person whose personal possessions are at risk if the business fails.

Stakeholders

Those people and entities (both internal and external) that have a stake, or interest, in the outcomes of the company.

Statement of Cash Flows

The financial statement designed to show the cash inflows and cash outflows for the periods of time covered by the income statement.

Statement of Owner’s Equity

The financial statement designed to show the changes that occurred in owners’ equity during the period of time covered by the income statement.

Unlimited liability

A situation where once the assets of a business are exhausted, the personal assets of the owners can be used to satisfy liabilities of the business.

Asset

The rights to use resources that have expected future economic benefits.