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Chapter one Accounting

Accounting
The process of recording, summarizing, analyzing, and interpreting financial activities to allow individuals and companies to make informed judgements and decisions
Accounting equation
Assets= Liabilities+ Owners equity. Referred to as the basic accounting equation
Accounting period
Time frame of which accounting records are maintained. Anywhere from a month to a year.
Accounts payable-
The liability that results from purchasing goods or services on credit.
Accounts receivable
The asset arising from selling goods or services on credit to customers.
Asset
An item with a monetary value owned by a business
Balance sheet
A listing of the firm’s assets, liabilities, and owner’s equity at a specific point of time. Also known as Statement of financial position statement
Business
An organization that operates with the objective of earning a profit
Business entity concept
A business is a distinct economy entity or unit that is separate from its owner and from any other business. Requires that the transactions of a business be recorded separately from the personal transactions of the business owner.
Cash
An asset; paper money, coins, checks, and money orders payable to a business.
Corporation
A form of business organization that is owned by investors or stockholders that has a separate legal existence from its owners
Cost Principle
An asset should be recorded at its actual cost
Creditor
A business or person to whom a debt is owed
Dual effect
All business transactions are recorded as having at least two effects on the basic accounting elements.
Equipment
A physical asset used by a business in its operations
Ethics
Principles of moral conduct that guide the behavior of individuals and businesses.
Expenses
The costs of operating a business
Financial statement
summaries of financial activities
Income statement
A summary of a business’s revenue and expenses for a specific period of time. Also known as an earning statement, operating statement, statement of operations, and profit and loss statement.
Liability
A debt owed to a creditor
Limited liability Company (LLC)
Organization that combines features of a corporation and those of a partnership or sole proprietorship.
Manufacturing Business
Business that produces a product to sell for profit.
Merchandising business
Business that purchases goods produced by others and then sells them to a customer to earn a profit. Also known as the trading business.
Net income
Excess of revenue over total expenses. Also known as net profit or net earnings.
Net loss
excess of total expenses over revenue.
Note payable
a formal written promise to pay a specified amount at a future date.
Owner’s equity
the difference between assets and liabilities; also referred to as capital, proprietorship, and net worth.
Partnership
A business co-owned by two or more people.
Realization principle
Revenue should be recorded when it’s earned
Revenue
Income earned from carrying out the major activities of a firm.
Sarbanes- Oxley Act of 2002
A law passed by Congress requiring companies to certify the accuracy of their financial information and intended to restore the public’s confidence in the financial statements of companies; often referred to as Sarbanes-Oxley or SOX
Service Business
A business that preforms services for customers to earn a profit.
Shift in assets
A change that occurs when one asset is exchanged for another asset, such as when supplies are traded for cash; occurs when one asset goes up in amount and another goes down.
Sole proprietorship
Business owned by one person.
Statement of owner’s equity
Statement of owner’s equity- A summary of the changes that have occurred in owners’ equity during a specific period of time; also referred to as capital statement.
Supplies
Short term physical assets needed in the operation of a business.
Tangible
Capable of being touched; the quality of a physical asset.
Transaction
any activity that changes the value of a firm’s assets, liabilities, or owners’ equity.
Withdrawal
The removal of business assets for the owner’s personal use.

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