Accounting Chapter 1

Terms	Definitions
Accounting	The information system that measures business activities, processes that information into reports, and communicates the results to decision.
Financial Statements	Documents that report on a business in monetary amounts, providing information to help people make informed business decisions.
Financial Accounting	The branch of accounting that focuses on information for people outside the firm.
Management Accounting	The branch of accounting that focuses in information for internal decisions makers of a business.
Financial Accounting Standards Board (FASB)	The private organization that determines how accounting is practiced in the United States.
Certified Public Accountant (CPA)	A licensed accountant who serves the general public rather than one particular company.
Certified Management Accountant	A licensed accountant who works for a single company.
Audit	An examination of a company's financial situation.
Proprietorship	A business with a single owner.
Partnership	A business with two or more owners.
Corporation	A business owned by stockholders; it begins when the state approves its articles of incorporation. A corporation is a legal entity, an "artificial person," in the eyes of the law.
Stockholder	A person who owns stock in a corporation. Also called a shareholder.
Generally Accepeted Accounting Principles (GAAP)	Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accountants measure, process, and communicate financial information.
Entity	An organiztion or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a seperate economic unit.
Accounting Equation	The basic tool of accounting, measuring the resources of the business and the claims to those resources: Assets = Liabilities + Owner's Equity.
Asset	An Economic resource that is expected to be of benefit in the future.
Liability	An economic obligation (a debt) payable to an individual or an organization outside the business.
Owner's Equity	The claim of a business owner to the assets of the business. Also called capital.
Account Receivable	A promise to recieve cash from customers to whom the business has sold goods of for whom the business has performed services.
Note Receivable	A written promise for future collection of cash.
Account Payable	A liability backed by general reputation and credit standing of the debtor.
Note Payable	A written promise of future payment.
Revenue	Amounts earned by delivering goods of services to customers. Revenues increase owner's equity.
Owner Withdrawls	Amounts removed from the business by an owner.
Expense	Decrease in owner's equity that occurs from using asets or increasing liabilities in the course of delivering goods or services to customers.
Transaction	An event that affects the financial position of a particular entity and can be recorded reliably.
Balance Sheet	An entity's assets, liabilities, and owner's equity as of a specific date. Also called the statement of financial position.
Net Income	Excess of total revenues over total expenses. Also called net earnings or net profit.
Net Loss	Excess of total expenses over total revenues.
Income Statement	Summary of an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of earnings or the statement of operations.
Statement of Owner's Equity	Summary of the changes in an entity's owner's equity during a specific period.
Statement of Cash Flows	Reports cash receipts and cash payments during a period.