Chapter 1 - Accounting: The Language of Business

Sole Proprietorship

A business entity owned by one person who is legally responsible for the debts and taxes of the business.

Partnership

A business entity owned by two or more persons who carry on a business for profit and who are legally responsible for the debts and taxes of the business.

Economic Entity

A business or organization whose major purpose is to produce a profit for its owners.

Social Entity

A nonprofit organization, such as a city, public school, or public hospital.

Accounting System

A process designed to accumulate, classify, and summarize financial data.

Exposure Draft

A proposed solution to a problem being considered by the Financial Accounting Standards Board.

Corporation

A publically or privatey owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockholders are not responsible for the debts or taxes of the business.

Tax Accounting

A service that involves tax compliance and tax planning.

Statements of Financial Accounting Standards

Accounting principles established by the Financial Accounting Standards Board.

Generally Accepted Accounting Principles (GAAP)

Accounting standards developed and applied by professional accountants.

Managerial Accounting

Accounting work carried on by an accountant employed by a single business in industry; the branch of accounting that provides financial information about business segments, activities, or products.

Governmental Accounting

Accounting work performed for a federal, state, or local governmental unit.

Discussion Memorandum

An explanation of a topic under consideration by the Financial Accounting Standards Board.

Certified Public Accountant (CPA)

An independent accountant who provides accounting services to the public for a fee.

Auditor's Report

An independent accountant's review of a firm's financial statements.

Entity

Anything having its own separate identity, such as an individual, a town, a university, or a business.

Stock

Certificates that represent ownership of a corporation.

Public Accountants

Members of firms that perform accounting services for other companies.

Creditor

One to whom money is owed.

Financial Statements

Periodic reports of a firm's financial position or operating results.

Management Advisory Services

Services designed to help clients improve their information systems or their business performance.

Separate Entity Assumption

The concept that a business is separate from its owners; the concept of keeping a firm's financial records separate from the owner's personal financial records.

Stockholders

The owners of a corporation; also called shareholders.

Accounting

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.

Auditing

The review of financial statements to assess their fairness and adherence to generally accepted accounting principles.

International Accounting

The study of accounting principles used by different countries.