CH.1 Into to accounting sec 1

market

market

a group of buyers and sellers of a particular good or service

profit

total revenue minus total cost

income

Money received

earnings

The amount of money that remains after subtracting the company's expenses from its revenue.

financial resources

Capital investments to support ongoing and long-term operations

Investors

Groups of individuals who invest their money in various types of companies in search of making a profit

Creditors

People or intuitions who lend money

Intrest

money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

Physical Resources

tangible items that organizations use in the conduct of their businesses

labor resources

Individuals who make the goods and services for which they are paid

Stakeholders

All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address.

Financial Accounting

the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders (external users)

Managerial Accounting

the area of accounting that focuses on reporting information to internal users like stakeholders and work within the business

not-for-profit organizations

groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, cultural, professional, or other activities, often with a social purpose

Public Accounting Firm

A business that provides a variety of accounting services including the independent audit.

Audit Services

involve examining a company's accounting records in order to issue an opinion about whether the company's financial statements conform to generally accepted accounting principles

Tax Services

include both determining the amount of tax due and tax planning to help companies minimize tax expense

Consulting Services

cover a wide range of activities that include everything from installing sophisticated computerized accounting systems to providing personal financial advice

Private accounting

The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization.

reporting entities

the people or businesses accountants report on

Accounting Equation

Assets = Liabilities + Owner's Equity

asset

Anything of value that is owned

Liabilities

debts that you owe

common stock

Corporation's basic ownership share; also generically called capital stock.

Stockholders

people or entities that own stock in a corporation and therefore are its owners

Stockholders' Equity

common stock and retained earnings

retained earnings

An amount earned by a corporation and not yet distributed to stockholders.

Claims

Owners' and creditors' interests in a business's assets.

accounting event

Economic occurrence that changes a company's assets, liabilities, or equity.

transaction

A business activity that changes assets, liabilities, or owner's equity

asset source transaction

increase the total amount of assets and increase the total amount of claims (+,+)

asset exchange transaction

A transaction that decreases one asset while increasing another asset so that total assets do not change; for example, the purchase of land with cash. (+,-)

asset use transaction

decrease the total amount of assets and the total amount of claims (-,-)

claims exchange transaction

Increase one claims account, decrease another (+,-)

accounts

The financial records of a firm's transactions.

accounting period

Length of time covered by financial statements; also called reporting period.

double-entry bookkeeping

the practice of writing every business transaction in two places

revenue

An increase in owner's equity resulting from the operation of a business

expense

a decrease in owner's equity resulting from the operation of a business

dividend

The portion of corporate profits paid out to stockholders

historical cost concept

Accounting practice of reporting assets at the actual price paid for them when purchased regardless of estimated changes in market value.

Financial Statements

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

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

Liquidity

the ease with which an asset can be converted into cash

Stewardship

Duty to protect and use asset's for the benefit of the owners (common stock)