Accounting Tools for Business Decision Making CH1

Sole Proprietorship
A business owned by one person.
Partnership
A business in which two or more persons combine their assets and skills.
Corporation
A business owned by stockholders who share in its profits but are not personally responsible for its debts.
Accounting
A comprehensive system for collecting, analyzing, and communicating financial information.
Sarbanes Oxley Act (SOX)
An act passed into law by Congress in 2002 to establish strict accounting and reporting rules in order to make senior managers more accountable and to improve and maintain investor confidence.
Liabilities
An organizations debts and other financial obligations.
Dividends
Earnings distributed to stockholders
Assets
Economic resources (things of value) owned by a firm.
Common Stock
Term used to describe the total amount paid in by stockholders for shares they purchase.
Revenue
The increase in assets resulting from the sale of a product or service in the course of normal business.
Account Receivable
A promise to receive cash from customers to whom the business has sold goods or for whom the business has performed services.
Account Payable
It is the obligation to pay for goods or services purchased on credit from suppliers.
Net Income Net Loss
Net Incomes Revenue>Expenses
Net Loss Revenue
Balance Sheet
Reports Assets, Liabilities, and Stockholders’ Equity.
Income Statement
Reports the success or failure of a company for a period of time.
Income Statement = Revenues – Expenses
Retained Earning Statement
Retained Earnings=Previous Retained Earnings +Net Income/Loss – Dividends
Basic Accounting Equation
Assets = Liabilities + Stockholders’ Equity
Retained Earnings
The net income retained in the corporation.
Management Discussion and Analysis
a section of the annual report that presents management’s views on the company’s ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations
Notes to the Financial Statement
clarify and expand upon the information presented in the financial statements.
Auditor’s Report
A report prepared by an independent outside auditor stating the auditor’s opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting standards.
Auditor
Accounting professional.
Certified Public Accountant (CPA)
An individual who has met certain criteria and is thus allowed to perform audits of corporations.
Unqualified Opinion
An unqualified opinion states that the financial statements are presented fairly in conformity with GAAP.
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