Ch1 flashcards

Accounting

The information system that identifies, records, and communicates the economic events of an organization to users interested in that information.

Accounting equation

The equation that states that Assets = Liabilities + Shareholders' Equity.

Assets

The resources owned or controlled by a business that are expected to provide future economic benefits.

Corporation

A company organized as a separate legal entity, with most of the rights and privileges of a person. Shares are evidence of ownership.

Creditors

Users of accounting information, including suppliers, that grant credit (sell on account) to a customer.

Data analytics

The process of analyzing data to find patterns and correlations, trends, and other valuable insights to enhance decision-making.

Deficit

A negative balance in retained earnings resulting from cumulative net losses exceeding cumulative net income.

Dividends

The distribution of retained earnings from a corporation to its shareholders, normally in the form of cash.

Expenses

The decreases in economic benefits that result from the costs of assets consumed or services used in ongoing operations to generate revenue.

External users

Users of accounting information that are not involved in managing the organization and do not have access to accounting information other than that which is publicly available, including investors, lenders, and other creditors.

Financing activities

Activities that report the cash effects of debt or equity financing. These include (1) borrowing or repaying cash from (to) lenders, and (2) issuing or reacquiring shares or paying dividends to investors.

Fiscal year

An accounting period that is one year long.

Generally accepted accounting principles (GAAP)

A general guide, having substantial authoritative support, that describes how economic events should be recorded and reported for financial reporting purposes.

Income

The increase in economic benefits that result from the normal operating activities of a business, such as the sale of a product or provision of a service.

Internal users

Users of accounting information, including company officers, managers, and directors, who have access to an organization's internal accounting information.

Investing activities

Activities that report the cash effects of purchasing and disposing of long-lived assets such as property, plant, and equipment and investments not held for trading.

Investors

Users of accounting information that have an ownership interest (owns debt or equity securities) in the organization.

Lenders

Users of accounting information, including bankers, that extend credit to borrowers.

Liabilities

The debts and obligations of a business. Liabilities are claims of lenders and other creditors on the assets of a business.

Net income

The amount by which revenues exceed expenses.

Net loss

The amount by which expenses exceed revenues.

Operating activities

Activities that result from day-to-day operations. They report the cash effects of transactions that create revenues and expenses.

Partnership

A business owned by more than one person that is not incorporated.

Private corporation

A corporation whose shares are not traded on a public stock exchange.

Proprietorship

A business owned by one person.

Public corporation

A corporation whose shares are publicly traded on a stock exchange.

Reporting entity concept

The concept that economic activity that can be identified with a particular company must be kept separate and distinct from the activities of the owner(s) and of all other economic entities.

Retained earnings

The amount of accumulated net income (less net losses, if any) from the prior and current periods that has been retained and reinvested in the corporation for future use and not distributed to shareholders as dividends.

Revenue

The increase in economic benefits that result from the operating activities of a business, such as the sale of a product or provision of a service.

Share capital

Shares representing the ownership interest in a corporation. If only one class of shares exists, it is known as common shares.

Shareholders' equity

The shareholders' claim on total assets, represented by the investments of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the company.

Statement of cash flows

A financial statement that provides information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time.

Statement of changes in equity

A financial statement that summarizes the changes in total shareholders' equity, as well as each component of shareholders' equity, for a specific period of time.

Statement of financial position

A financial statement that reports the assets, liabilities, and shareholders' equity at a specific date.

Statement of income

The main financial statement that reports a company's financial performance during the period.