Accounting CH.1

Account Receivable

A company's claim against the customer; an account receivable is an asset, and the revenue is earned and recorded as if cash had been received.

Public Accounting

Accountants and their staff who provide services on a fee basis.

Cost Concept

Amounts are initially recorded in the accounting records at their cost or purchasing price.

Securities Exchange Commission (SEC)

An agency of the US Government, has authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public.

Business Transaction

An economic event or condition that directly changes an entity's financial condition or its results of operations.

Accounting

An information system that provides reports to users about the economic conditions and activities of a business.

Business

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods and services (outputs) to customers.

Stockholders equity

Another phrase for the owner's equity in a corporation. Stockholder's equity is classified as: 1. Capital Stock 2. Retained Earnings.

Expenses

Assets used in the process of earning revenue

Accounting Equation

Assets=Liabilities + Owner's Equity. (Liabilities are usually shown before owner's equity in the accounting equation because creditors have first right to the assets).

Manufacturing Businesses

Change basic inputs into products that are sold to customers (Like Ford or Dell).

Limited Liability Company (LLC)

Combines the attributes of a partnership and a corporation.

Generally accepted Accounting Principals (GAAP)

Companies follow GAAP when preparing reports. These reports allow investors and other users to compare one company to another.

Matching Concept

Concept applied by matching the expenses incurred during a period with the revenue that those expenses generated.

Profit

Difference between amounts received from customers for goods and services and the amounts paid for the inputs used to provide the goods or services.

Dividends

Distributions of earnings to stockholders

Account form

Form of a balance sheet which resembles the basic format of the accounting equation, with assets of the left side and the liabilities and stockholder's equity sections on the right side.

Net loss

If the expenses exceed the revenue

Managerial Accounting

Internal users that are involved in the managing and operating of the business.

Corporation

Is organized under state or federal statutes as a separate, legal taxable entity

Prepaid Expenses

Items such as supplies that will be used in the business in the future.

Business Entity Concept

Limits the economic data in an accounting system to data related directly to the activities of the business. Viewed as a separate entity from it's owners, creditors and other businesses.

Private Accounting

Managerial accountants employed by a business that handle sensitive information including plans to expand the business, prices, etc.

Ethics

Moral principals that guide the conduct of individuals.

General Purpose Financial Statement

One type of financial accounting report that is distributed to external users.

Service Business

Provides services rather than products to customers (Like Delta Airlines or Walt Disney Company).

Certified Public Accountants (CPAs)

Public accountants who have met a state's education, experience and examination requirements.

Financial Statements

Reports that provide information about transactions after they have been recorded and summarized.

Unit of measure concept

Requires that economic data be recorded in dollars.

Objectivity Concept

Requires that the amounts recorded in the accounting records be based on objective evidence.

Fees Earned

Revenue from providing services

Sales

Revenue from the sale of merchandise

Merchandising Businesses

Sell products they purchase from other businesses to customers (Like Wal Mart / Amazon.com) .

Capital Stock

Stock Issued to owners (stockholders)

Revenue

The amount earned by a business by selling goods or services to its customers.

Financial Accounting

The area of accounting that provides external users (creditors, customers, and the government) with information.

Net Income

The excess of the revenue over the expenses

Accounts Payable

The liability created by a purchase on account.

Stockholder's Equity

The owner's equity in a corporation

Liabilities

The rights of creditors and the debts of a company.

Owner's Equity

The rights of the owners.