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KEYS TO UNDERSTANDING FINANCIAL REPORTS

ACCOUNTING EQUATION

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

ACCOUNTS PAYABLE

Money an organization owes its vendors and suppliers.

ACCOUNTING SYSTEM

a planned process for providing financial information that will be useful to management.

ACCOUNT TITLES

A name given to each item exchanged

ASSETS

property or items of value owned by a business, Resources a business owns or controls that are expected to provide current and future benefits to the business.

FUNDAMENTAL ACCOUNTING EQUATION

Assets = Liabilities + Owner's Equity

HISTORICAL COST

the actual amount paid for merchandise or other items bought is recorded

LIABILITIES

The amounts a BUSINESS owes to a CREDITOR

NOTES PAYABLE

Short-term or long-term liabilities that a business promises to repay by a certain date.

OWNERS EQUITY

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

REVENUES

funds that flow into a business from the sale of goods or services

SEPARATE ENTITY ASSUMPTION

Activities of the business are separate form activities of the owners.

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