Chapter one Accounting

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Accounting
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The process of recording, summarizing, analyzing, and interpreting financial activities to allow individuals and companies to make informed judgements and decisions
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Accounting equation
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Assets= Liabilities+ Owners equity. Referred to as the basic accounting equation
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Accounting period
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Time frame of which accounting records are maintained. Anywhere from a month to a year.
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Accounts payable-
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The liability that results from purchasing goods or services on credit.
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Accounts receivable
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The asset arising from selling goods or services on credit to customers.
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Asset
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An item with a monetary value owned by a business
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Balance sheet
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A listing of the firm’s assets, liabilities, and owner’s equity at a specific point of time. Also known as Statement of financial position statement
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Business
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An organization that operates with the objective of earning a profit
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Business entity concept
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A business is a distinct economy entity or unit that is separate from its owner and from any other business. Requires that the transactions of a business be recorded separately from the personal transactions of the business owner.
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Cash
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An asset; paper money, coins, checks, and money orders payable to a business.
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Corporation
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A form of business organization that is owned by investors or stockholders that has a separate legal existence from its owners
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Cost Principle
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An asset should be recorded at its actual cost
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Creditor
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A business or person to whom a debt is owed
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Dual effect
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All business transactions are recorded as having at least two effects on the basic accounting elements.
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Equipment
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A physical asset used by a business in its operations
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Ethics
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Principles of moral conduct that guide the behavior of individuals and businesses.
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Expenses
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The costs of operating a business
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Financial statement
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summaries of financial activities
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Income statement
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A summary of a business’s revenue and expenses for a specific period of time. Also known as an earning statement, operating statement, statement of operations, and profit and loss statement.
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Liability
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A debt owed to a creditor
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Limited liability Company (LLC)
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Organization that combines features of a corporation and those of a partnership or sole proprietorship.
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Manufacturing Business
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Business that produces a product to sell for profit.
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Merchandising business
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Business that purchases goods produced by others and then sells them to a customer to earn a profit. Also known as the trading business.
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Net income
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Excess of revenue over total expenses. Also known as net profit or net earnings.
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Net loss
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excess of total expenses over revenue.
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Note payable
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a formal written promise to pay a specified amount at a future date.
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Owner’s equity
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the difference between assets and liabilities; also referred to as capital, proprietorship, and net worth.
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Partnership
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A business co-owned by two or more people.
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Realization principle
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Revenue should be recorded when it’s earned
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Revenue
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Income earned from carrying out the major activities of a firm.
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Sarbanes- Oxley Act of 2002
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A law passed by Congress requiring companies to certify the accuracy of their financial information and intended to restore the public’s confidence in the financial statements of companies; often referred to as Sarbanes-Oxley or SOX
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Service Business
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A business that preforms services for customers to earn a profit.
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Shift in assets
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A change that occurs when one asset is exchanged for another asset, such as when supplies are traded for cash; occurs when one asset goes up in amount and another goes down.
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Sole proprietorship
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Business owned by one person.
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Statement of owner’s equity
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Statement of owner’s equity- A summary of the changes that have occurred in owners’ equity during a specific period of time; also referred to as capital statement.
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Supplies
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Short term physical assets needed in the operation of a business.
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Tangible
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Capable of being touched; the quality of a physical asset.
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Transaction
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any activity that changes the value of a firm’s assets, liabilities, or owners’ equity.
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Withdrawal
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The removal of business assets for the owner’s personal use.

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