Chapter 1 - Starting a Proprietorship

account

a record summarizing all the information pertaining to a single item in the accounting equation

account balance

the amount in an account

account title

the name given to an account

accounting

planning, recording, analyzing, and interpreting financial information

accounting equation

an equation showing the relationship among assets, liabilities, and owner's equity

accounting system

a planned process for providing financial information that will be useful to management

asset

Anything of value that is owned by an individual

business ethics

The use of ethics in making business decisions

equities

Financial rights to the assets of a business

capital account

the account used to summarize the owner's equity in a business

ethics

the principles of right and wrong that guide an individual in making decisions

expense

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

financial statements

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

liability

An amount owed by a business

owner's equity

the amount remaining after the value of all liabilities is subtracted from the value of all assets

proprietorship

A business owned by one person

revenue

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

sale on account

a sale for which cash will be received at a later date

service business

a business that performs an activity for a fee

transaction

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

withdrawals

assets taken out of a business for the owner's personal use

net worth statement

A formal report that shows what an individual owns, what an individual owes, and the difference between the two.

personal net worth

The difference between personal assets and personal liabilities

equity

the difference between assets and liabilities

business plan

a formal written document that describes the nature of a business and how it will operate

GAAP

Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities.

creditor

A person or business to whom a liability is owed

interest

An amount paid for the use of money for a period of time.

compound interest

Interest paid on an original amount deposited in a bank plus any interest that has been paid.