Accounting Chapter 2

An economic concept relating to income forgone because an opportunity to earn income was not pursued.

Opportunity cost

A record in which transactions affecting individual assets, liabilities, owners' equity, revenues, and expenses are recorded.

Account

Assets = Liabilities + Owner's Equity (A = L + OE). The fundamental relationship represented by the balance sheet and the foundation of the bookkeeping process.

Accounting equation

A liability representing an amount payable to another entity, usually because of the purchase of merchandise or services on credit.

Accounts payable

An asset representing a claim against another entity, usually arising from selling goods or services on credit.

Accounts receivable

Accounting that recognizes revenues and expenses as they occur, even though the cash receipt from the revenue or the cash disbursement related to the expense may occur before or after the event that causes revenue or expense recognition.

Accrual accounting

Amounts that are owed by an entity on the balance sheet date.

Accrued liabilities

The sum of the depreciation expense that has been recognized over time. ____ is a contra asset - an amount that is subtracted from the cost of the related asset on the balance sheet.

Accumulated depreciation

The excess of the amount received from the sale of stock over the par value of the shares sold.

Additional paid-in capital

The financial statement that is a listing of the entity's assets, liabilities and owners' equity at a point in time. Sometimes this statement is called the statement of financial position.

Balance sheet

Another term for the accounting equation.

Balance sheet equation

An asset on the balance sheet that represents the amount of cash on hand and balances in bank accounts maintained by the entity.

Cash

The class of stock that represents residual ownership of the corporation.

Common stock

A form of organization in which ownership is evidenced by shares of stock owned by stockholders' its features, such as limited liability of the stockholders, make this the principal form of organization for most business activity.

Corporation

Cost of merchandise sold during the period; an expense deducted from net sales to arrive at gross profit. A frequently used synonym is cost of sales.

Cost of goods sold

Cash and those assets that are likely to be converted to cash or used to benefit the entity within one year of the balance sheet date.

Current assets

Those liabilities due to be paid within one year of the balance sheet date.

Current liabilities

The accounting process of recognizing the coast of an asset that is used up over its useful life to the entity.

Depreciation

The expense recognized in a fiscal period for the depreciation of an asset.

Depreciation expense

A distribution of earnings to the owners of a corporation

Dividend

Net income available to the common stockholders divided by the average number of shares of common stock outstanding during the period. Usually referred to simply as EPS.

Earnings per share of common stock outstanding

A presumption that the entity will continue in existence for the indefinite future.

Going concern concept

Net sales less cost of goods sold. Sometimes called gross margin.

Gross profit

The difference between gross profit and operating expenses. Also referred to as operating income.

Income from operations

The financial statement that summarizes the entity's revenues, expenses, gains, and losses for a period of time and thereby reports the entity's results of operations for that period of time.

Income statement

Probably future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to their entities in the future as a result of past transactions or events.

Liablilities

Decreases in net assets from incidental transactions that are not expenses or distributions to owners.

Losses

The concept that expenses incurred in generating revenues should be deducted from revenues earned during the period for which results are being reported.

Matching concept

Items held by an entity for sale to customers in the norma course of business.

Merchandise inventory

The difference between assets and liabilities; also refereed to as owner's equity

Net assets

The excess of revenues and gains over expenses and losses for a fiscal period.

Net income

Another term for net assets or owners' equity, but not as appropriate because the term worth may be misleading.

Net worth

The equity of the entity's owners in the assets of the entity. Sometimes called net assets; the difference between asset and liabilities.

Owners' equity

Gross sales, less sales discounts and sales returns and allowances.

Net sales

Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.

Assets

The ownership right associated with an asset.

Equity

Outflows or other using up of assets or incurring a liability during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's major operations.

Expenses

The annual period used for reporting to owners

Fiscal year

Increases in net assets from incidental transactions that are not revenues or investments by owners.

Gains