Chapter 2 - Accounting

Long-term assets

Assets that a company needs in order to operate its business over an extended period of time.

Arm's-length Transactions

Business dealings between independent and rational parties who are looking out for their own interests.

Revenue

Increase in a company's assets from the sale of goods or services.

Current Liabilities

Liabilities expected to be satisfied within a year or the current operating cycle, whichever is longer.

Long-term liabilities

Liabilities that are not expected to be satisfied within a year.

Losses

Money lost on activities outside the normal operation of a company.

Gains

Money made on activities outside the normal operation of a company.

Liabilities

Obligations to pay cash, transfer other assets, or provide services to someone else.

Cost Principle

The idea that transactions are recorded at their historical costs or exchange prices at the transaction date.

Articulation

The interrelationships among the financial statements.

Stockholders (shareholders)

The owners of a corporation.

Net Assets

The owners' equity of a business; equal to total assets minus total liabilities.http://quizlet.com/create_set/#remove-row

Stockholders' Equity

The owners' equity section of a corporate balance sheet.

Owner's Equity

The ownership interest in the net assets of an entity; equals total assets minus total liabilities.

Capital Stock

The portion of stockholder's equity that represents investments by owners in exchange for shares of stock. Also referred to as paid-in capital.

Book Value

The value of a company as measured by the amount of owner's equity; that is, assets less liabilities.

Market Value

The value of a company as measured by the number of shares of stock outstanding multiplied by the current market price of the stock; the current value of a business.

Current Assets

Cash and other assets that can be easily converted to cash within a year.

Monetary Measurement

The idea that money is the accounting unit of measurement and that only economic activities measurable in monetary terms are included in the accounting model.

Comparative Financial Statements

Financial statements in which data for two or more years are shown together.

Classified Balance Sheet

A balance sheet in which assets and liabilities are subdivided into current and longterm categories.

Comprehensive Income

A measure of the overall change in a company's wealth during a period; consists of net income plus changes in wealth resulting from changes in investment value and exchange rates.

Audit Report

A report issued by an independent CPA to evaluate whether a company's financial statements fairly report its financial position, operating results, and cash flows in accordance with generally accepted accounting principles.

Statement of retained earnings

A report that shows the changes in retained earnings during a period of time.

Double-entry Accounting

A system of recording transactions in a way that maintains the equality of the accounting equation.

Investing Activities

Activities associated with buying and selling long-term assets.

Operating Activities

Activities that are part of a day-to-day business of a company.

Financial Activities

Activities whereby cash is obtained from or repaid to owners and creditors.

Accounting Equation

An algebraic equation that expresses the relationship between assets (resources), liabilities (obligations), and owners' equity (net assests, or the residual interest in a business after all liabilities have been met): Assets = Liabilities + Owners' Equity.

Entity

An organizational unit (a person, partnership, or corporation) for which accounting records are kept and about which accounting reports are prepared.

Net Income (net loss)

An overall measure of the performance of a company; equal to revenues minus expenses for the period.

Expenses

Costs incurred in the normal course of business to generate revenues.

Dividends

Distributions to the owners (stockholders) of a corporation.

Transactions

Exchange of goods or services between entities (whether individuals, businesses, or other organizations), as well as other events having an economic impact on a business.

Notes to the Financial Statements

Explanatory information considered an integral part of the financial statements.

Liquidity

The ability of a company to pay its debts in the short run.

Retained Earnings

The amount of accumulated earnings of the business that have not been distributed to owners.

Earnings (loss) per share (EPS)

The amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of stock outstanding during the period.

Primary Financial Statements

The balance sheet, income statement, and statement of cash flows used by external groups to assess a company's economic standing.

Accounting Model

The basic accounting assumptions, concepts, principles, and procedures that determine the manner of recording, measuring, and reporting a company's transactions.

Historical Cost

The dollar amount originally exchanged in an arm's-length transaction; assumed to reflect the fair market value of an item at the transaction date.

Gross Profit (Gross Margin)

The excess of net sales revenue over the cost of goods sold.

Balance Sheet (statement of financial position)

The financial statement that reports a company's assets, liabilities, and owner's equity at a particular date.

Statement of Cash Flows

The financial statement that reports the amount of cash collected and paid out by a company during a period of time.

Income Statement (statement of earnings)

The financial statement that reports the amount of net income earned by a company during a period.

Going Concern Assumption

The idea that an accounting entity will have a continuing existence for the foreseeable future.

Separate Entity Concept

The idea that the activities of an entity are to be separated from the those of the individual owners.