Chaper 1 Accounting

GAAP

Pronounced as "gap," GAAP helps ensure that all companies follow the same set of guidelines and practices when reporting financial data.

Net worth statement

A formal report that shows what an individual owns, what an individual owes, and the difference between the two.

Creditor

A person or business to whom a liability is owed.

Account

A record that summarizes all the transactions pertaining to a single item in the accounting equation.

Sale on Account

A sale for which payment will be received at a later date.

Expense

Unlike a liability, which is an amount that is owed, the cost of goods or services used to operate a business.

Service business

A business that performs an activity for a fee.

Transaction

Accountants call any business activity that changes assets, liabilities, or owner's equity a transaction.

Liability

Amounts that are owed to others must be identified and assigned values. An amount owed.

Capital account

An account used to summarize the owner's equity in a business.

Revenue

An increase in equity resulting from the sale of goods or services.

Asset

Anything of value that is owned.

Withdrawls

Assets taken from the business for the owner's personal use.

Financial statements

Business owners and managers use financial statements to make business decisions.

Equities

Financial rights to the assets of a business.

Accounting

Is the process of planning, recording, analyzing, and interpreting financial information.

Owner's equity

The amount remaining after the value of all liabilities is subtracted from the value of all assets.

Personal net worth

The difference between personal assets and personal liabilities is called personal net worth.

Account Balance

The difference between the increases and decreases in an account.

Accounting equation

The equation showing the relationship among assets, liabilities, and owner's equity.

Account title

The name given to an account.

Ethics

The principles of right and wrong that guide an individual in making decisions.

Business ethics

The use of ethics in making business decisions.

Proprietorship

is a business owned by one person.

Business plan

is a formal written document that describes the nature of a business and how it will oper- ate.

Accounting system

is a planned process designed to compile financial data and summarize the results in accounting records and reports.

Equity

is the difference between assets and liabilities.