Chapter 1 Accounting

Expenses (pg.14)

Decreases in stockholders' equity (company's resources) incurred by a firm during the process of generating its sales revenues. -Expenses are generally measured by the value of the assets used up or exchanged as a result of a business's operating activities. Ex. the cost of the item sold, referred to as cost of goods sold, selling expenses, marketing expenses, administrative expenses, interest expense, and income taxes.

Management Discussion and Analysis (MD&A) (pg.20)

Part of the annual report that contains management's interpretation of the company's recent past performance along with the discussion of possible future opportunities and risks.

Managerial Accounting (pg.8)

The accounting activities carrie rout by a firm's accounting staff primarily to provide management with accounting data for decisions related to a firm's operations.

Notes to the Financial Statements (pg.20)

The annual report section following the four financial statements that includes a description of the assumptions and estimates that were used in preparing the statements, the measurement procurers that were followed, and detailers behind the summary numbers.

Financial Accounting (pg.7)

The area of accounting dealing with the preparation of finical statements showing a business's results of operations, finical position, and cash flows.

Net Assets (pg.13)

The difference between a business's assets and liabilities. Net assets are equal to stockholders' equity.

Retained Earnings (pg.16)

The earnings of a corporation that have been retained in the corporation (have not been paid out as a dividend) for future corporate uses. -Retained earnings are increased when operations produce net income and decreased when operations produce a net loss. Retained earnings also decrease when a company pays a dividend to its stockholders.

Assets (pg.13)

The economic resources of a business that can be expressed in money terms. (a company's resources) Assets come in many Forms: -Cash is an asset, as are claims to receive cash payments from customers for goods and services provided, called accounts receivable. - Other types of assets include inventory, supplies, land, buildings, and equipment. *The key characteristic of any asset is that it represents a probable future economic benefit to a business.

Accounting (pg.10)

The process of measuring the economic activity of a business in money terms and communicating those financial results to interested parties. The purpose of accounting is to provide financial information that is useful in economic decision making. -The accounting process consists of two principal activities- measurement and communication.

Statement of Stockholders' Equity (pg.15)

A financial statement presenting information regarding the events that cause a change in stockholders' equity during a period. The statement presents the beginning balance, additions to, deductions from, and the ending balance of stockholders' equity for the period. -The statement of stockholders' equity consists of two parts- contributed capital and earned capital.

Balance Sheet (pg.13)

A financial statement showing a business's assets, liabilities, and stockholders' equity as of a specific date (usually the end of an accounting period).

Statement of Cash Flows (pg.17)

A financial statement showing a firm's cash inflows and cash outflows for a specific period, classified into operating, investing, and financing activity categories.

Corporation (pg.4)

A legal entity created under the laws of a state or the federal government. The owners of a corporation receive shares of stock as evidence of their ownership interest in the company.

New York Stock Exchange (NYSE) (pg.5)

A marketplace, located in New York City, for the buying and selling of corporate shares.

Annual Report (pg.19)

A report filed with the U.S. Securities and Exchange Commission by publicly held companies that reports the financial position and operating performance of the company. A less detailed version is mailed to the company's stockholders. -Which is called the 10-K report. -The four financial statements explained in this chapter are essential components of this report. Additional components of the annual report are the Management Discussion and Analysis, the notes to the financial statements, and the auditor's report.

Auditor's Report (pg.21)

A report issued by an independent auditor that reports the auditor's opinion regarding a company's financial statements. -An opinion regarding the fair presentation of financial statements.

Financing Activities (pg.5)

A section in the statement of cash flows that reports cash flows associated with obtaining cash from owners and creditors, returning cash to owners, and repaying amounts borrowed. -Debt Financing -Equity Financing

Operating Activities (pg.6)

A section in the statement of cash flows that reports cash flows from all activities that are not classified as investing or financing activities. The day-to-day actives of producing and selling a product or providing a service.

Investing Activities (pg.6)

A section in the statement of cash flows that reports cash flows involving (1) the purchase and sale of plant assets and intangible assets, (2) the purchase and sale of stocks, bonds, and other securities (other than cash equivalents), and (3) the lending and subsequent collection of money.

Generally Accepted Accounting Principles (GAAP) (pg.10)

A set of standards and procedures that guide the preparation of financial statements. That can do change over time.

Equity Financing (pg.5)

A source of financing for a company involving the sale of shares of common stock.

International Accounting Standards Board (IASB) (pg.12)

An independent accounting standard-setting agency whose purpose is to develop international financial accounting standards.

Creditors (pg.5)

An individual or finical institution that lends money and services to a company with the expectation of receiving repayment in the future.

International Financial Reporting Standards (IFRS) (pg.12)

An international set of accounting standards, interpretations,and the framework for the preparation and presentation of financial statements used in many countries.

Stockholders (or shareholders) (pg.4)

An owner of a corporation as a result of the purchase of the corporation's shares of stock; also known as a shareholder.

Accounts Payable (pg.13)

If a business owes money to various suppliers for goods or services already provided.

Wages Payable (pg.13)

If a business owes wades to its employees for work already performed.

Sales Revenue (pg.14)

Increases in stockholders' equity (company's resources) that result when a firm provides goods or services to its customers. -The amount of sales revenue earned is measured by the value of the assets received in exchange for the goods or services delivered.

Partnership (pg.4)

Is a voluntary association of two or more persons for the purpose of conducting a business.

Common Shares (Common Stock) (pg.16)

Ownership shares

Stockholder's Equity (pg.13)

Refers to the ownership (stockholder) claims on the assets of the business. Stockholders' equity represents residual claim on a business's assets; that is, it is a claim on the assets of a business that remain after all liabilities to creditors have beens satisfied. Stockholders' equity is equal to a firm's net assets, or total assets less total liabilities.

Income Statement (pg.14)

Reports the results of operations for a business for a given time period, usually a quarter or a year. -The income statement lists the revenues and expenses of the business.

Contributed Capital (pg.16)

The capital contributed to a company by stockholders when they purchase shares of stock from the company.

Liabilities (pg.13)

The obligations or debts that a business must pay in cash or in goods and services at some future time as a consequence of past transactions or events.

Net Loss (pg.15)

When total expenses exceed sales revenue.

Net Income (pg.15)

When total revenue exceeds total expenses.

When financial statements are prepared, the sequence suggested by these relations is customarily followed; (pg.18)

(1) Income Statement (2) Statement of Stockholders' Equity (3) Balance Sheet (4) Statement of Cash Flows

Period-In-Time Statements (pg.18)

A financial statement accumulating information for a specific period of time; examples include the income statement, the statement of stockholders' equity, the statement of retained earnings, and the of cash flows.

Point-In-Time Statements (pg.18)

A financial statement presenting information as of a particular date; the balance sheet is a point-in-time statement.

Sole Proprietorship (pg.4)

A form of business organization in which ine person owns the business.

Debt Financing (pg.5)

A source of financing for a company involving the use of debt, such as a bank loan or the issuance of bonds. a person pays back the principal amount and the interest fee

Ethics (pg.8)

An area of inquiry dealing with the values, rules, and justifications that govern an individual's way of life or a corporation's behavior.

Accounting Equation (pg.13)

An expression of the equivalency of the economic resources and the claims upon those resources of a business, often stated as Assets= Liabilities+ Stockholders' Equity

Accounts Receivable (pg.13)

Are claims to receive cash payments from customers for goods or services provided.

Principal (pg.5)

As it relates to debt financing, the amount initially borrowed from the creditor.

Generally Accepted Auditing Standards (GAAS) (pg.11)

Auditing standards; monitor the quality of financial statements and audits.

Earned Capital (pg.16)

Capital that is earned by a company and not distributed to its stockholders as a dividend; referred to as retained earnings.