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Accounting

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Planning, recording, analyzing, and interpreting financial information.

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Accounting equation

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The most basic tool of accounting: Assets = Liabilities + Owner's equity.

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Asset

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An economic resource that is expected to be of benefit in the future.

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Balance sheet/statement of financial position

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A list of an entity's assets, liabilities, and owner's equity as of a specific date.

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Board of directors

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A group elected by the stockholders to set policy for a corporation and to appoint its officers.

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Capital

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Another name for the owner's equity of a business.

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Common stock

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The most basic form of capital stock.

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Continuity assumption/going-concern assumption

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Holds that the entity will remain in operation for the foreseeable future.

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Current asset

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An asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year.

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Current liability

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A debt due to be paid within one year or within the entity's operating cycle if the cycle is longer than a year.

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Deficit

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Negative balance in retained earnings caused by net losses over a period of years.

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Dividends

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Distributions (usually cash) by a corporation to its stockholders.

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Entity

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An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit.

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Ethics

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standards of right and wrong that transcend economic and legal boundaries. Ethical standards deal with the way we treat others and retrain our own actions because of the desires, expectations, or rights of others, or because of our obligations to them.

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Expenses

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Decrease in retrained earnings that results from operations; the cost of doing business; opposite of revenues.

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Fair value

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the amount that a business could sell an asset for, or the amount that a business could pay to settle a liability.

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Financial accounting

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The branch of accounting that provides information to people outside the firm.

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Financial statements

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business documents that report financial information about a business entity to decision makers.

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Financing activities

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activities that obtain from investors and creditors that cash needed to launch and sustain the business; a section of a statement of cash flows.

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Generally accepted accounting principles (GAAP)

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Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accounting is practiced.

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Historical cost principle

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Principle that states that assets and services should be recorded at their actual cost.

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Income statement/statement of operations

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A financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of operations.

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International Financial Reporting Standards (IFRS)

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Accounting guidelines, formulated by the International Accounting Standards Board (IASB). By 2015, U.S. GAAP is expected to be harmonized with IFRS. At that time, U.S. companies are expected to adobpt these principles for their financial statements, so that they can be compared with those of companies from other countries.

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Investing activities

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Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows.

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Liability

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An economic obligation (a debt) payable to an individual or an organization outside the business.

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Limited liability company

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A business organization in which the business (not the owner) is liable for the company's debts.

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Long-term debt

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A liability that falls due beyond one year from the date of the financial statements.

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Management accounting

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The branch of accounting that generates information for the internal decision makers of a business, such as top executives.

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Net income/net earnings

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Excess of total revenues over total expenses. Also called net earnings or net profit.

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Net loss

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Excess of total expenses over total revenues.

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Net profit

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Another name for net income.

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Operating activities

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Activities that create revenue or expenses in the entity's major line of business; a section of that statement of cash flows. Operating activities affect the income statement.

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Owner's equity

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The claim of the owners of a business to the assets of the business. Also called capital, stockholder's equity, or net assets.

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Paid-in capital

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The amount of stockholder's equity that stockholdrs have contributed to the corporation. Also called contributed capital.

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Partnership

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An association of two or more persons who co-own a business for profit.

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Proprietorship

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A business with a single owner.

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Retained earnings

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The amount of stockholder's equity that the corporation has earned through profitable operation and has not given back to stockholders.

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Revenues

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Increase in retained earnings from delivering goods or services to customers or clients.

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Shareholder/stockholder

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A person who owns stock in a corporation.

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Stable-monetary-unit assumption

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The reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar's purchasing power is relatively stable.

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Statement of cash flows

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reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing.

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Statement of retained earnings

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summary of the changes in the retained earnings of a corporation during a specific period.

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Stock

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shares into which the owners equity of a corporation is divided.

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Stockholder's equity

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the stockholder's ownership interest in the assets of a corporation.

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