acg chapter 1 & 2 definitions

financial accounting

accounting information and analyses prepared for people outside the organization

Generally Accepted Accounting Principles (GAAP)

the rules of financial accounting

Accounting Equation

An equation showing the relationship among assets, liabilities, and owner's equity (Assets = Liabilities + Stockholders Equity)

Assets

resources owned by a business

Liabilities

Amounts owed to creditors

revenue

income

Stockholders' Equity

The owners' claim to assets.

Expenses

The cost of assets consumed or services used in the process of generating revenues.

Net Income

the difference between total revenue and total expenses when total revenue is greater

account

sum of the effects of all transactions related to a certain item over a period of time

Chart of Accounts

a list of all account names used to record transactions of a company

Financial Statements

periodic reports published by the company for the purpose of providing information to external users

Income Statement

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.

Statement of Stockholders' Equity

a financial statement that summarizes the changes in stockholders' equity over an interval of time

Balance Sheet

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

Statement of Cash Flows

A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

business transactions

economic events that affect a business's financial position

Accounting Period

the time period covered by the financial statements

cash account

Liquid assets owned by a company

Major category: asset

Financial Statement: Balance Sheet

Normal Balance: Debit

Accounts Receivable Account

amounts the company expects to collect from customers based on delivery of service

Major Category: Asset

Financial Statement: Balance Sheet

Normal Balance: Debit

Prepaid Expenses Account

Cost of assets acquired in one period that will be expensed in a future period

Category: Asset

Financial Statement: Balance Sheet

Normal Balance: Debit

Accounts payable account

Promise to pay cash in the future to creditors when purchasing supplies or materials.

Category: Liability

Financial Statement: Balance Sheet

Normal Balance: Credit

Inventory Account

Promise to pay cash in future to creditors when buying supplies

Category: Liability

Financial Statement: Balance Sheet

Normal Balance: Credit

Supplies Account

The cost of supplies (pens, paper, toner, etc.) used in the operation of a business.

Category: Asset.

Financial Statement: Balance Sheet.

Normal Balance: Debit.

Notes Payable Account

Total amounts owed to creditors for loaning money to the company.

Category: Liability.

Financial Statement: Balance Sheet.

Normal Balance: Credit.

Deferred (Unearned) revenue account

Cash in advance from a customer for products or services to be provided in the future.

Category: Liability.

Financial Statement: Balance Sheet.

Normal Balance: Credit.

Common Stock Account

Amount shareholders have invested in the business.

Category: Stockholders' Equity.

Financial Statement: Balance Sheet.

Normal Balance: Credit.

Retained earnings account

Cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends.

Category: Stockholders' Equity.

Financial Statement: Balance Sheet.

Normal Balance: Credit.

Dividend Account

Cash payments to stockholders (owners)

Financial Statement: Statement of Stockholders' Equity

Normal Balance: Debit

Revenue Account

The amounts earned from selling products or services to customers

Financial Statement: Income Statement

Normal Balance: Credit

Rent Expense Account

The cost of renting the real estate space to facilitate providing products and services to customers

Financial Statement: Income Statement

Normal Balance: Debit

Utilities Expense Account

cost of utilities used in the facilitation of providing products to customers

Financial Statement: Income Statement

Normal Balance: Debit

General Ledger

all accounts used to record the company's transactions

journal

a chronological record of all transactions affecting a firm

Posting

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

Unadjusted Trial Balance

A list of all accounts and their balances before adjusting entries are completed, showing the total debits and credits.