Chapter 1
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45 terms
Terms | Definitions |
|---|---|
 Annual Report | A company may publish its income statement, balance sheet, and cash flow statement (and a statement of changes in owner's equity) along with other related financial accounting information in its annual report. |
| Assets | Economic resources that a company owns and that it expects will provide future benefits to the company |
| Balance Sheet | Summarizes its financial position on a given date (usually the last day of the time period covered by the income statement). Also called a statement of financial position. |
| Budgeting | Process of quantifying managers' plans and showing the impact of these plans on the company's operating activities and financial position. Managers present this information in a budget. |
| Capital | Funds a company needs to operate or to expand operations |
| Cash Flow Statement | Summarizes a company's total cash receipts, cash payments, and net change in cash for a specific time period. |
| Corporation | Company organized as a separate legal entity, or body (separate from its owners) according to the laws of a particular state. In 2006, nearly 19% of all companies. |
| Cost Analysis (Cost Accounting) | Process of determining and evaluating the costs of specific products or activities within a company |
| Creative Thinking | Process of actively generating new ideas. Generally refers to spontaneous and free-flowing thoughts that open the door to new ideas. |
| Critical Thinking | Process that evaluates the ideas generated by creative thinking. Determines if any of the ideas will work, what types of problems they might have, whether they can be improved, and which ones are better than others. |
| Entrepreneur | An individual who is willing to risk uncertainty that customers will buy what the company provides in exchange for the reward of earning a profit (and the personal reward of seeing the company succeed) |
| Factors of Entrepreneurship | 1. The company owner's idea 2. The willingness of the company's owner to take a risk 3. The abilities of the company's owner and employees to use capital and produce and sell goods or services |
| Evaluating | Management activity that measures actual operations and progress against standards or benchmarks; provides feedback for managers to use to correct deviations from those standards, and to plan for the company's future operations |
| External Users | Diverse groups of people outside the company |
| Financial Accounting | Gives information about a company to external users |
| Financial Statements | Accounting reports used to summarize and communicate financial information about a company |
| Flexibility | Refers to the spectrum of ideas generated |
| Fluency | Refers to the number of ideas generated or solutions proposed as problem solutions |
| Generally Accepted Accounting Principles (GAAP) | Currently accepted principles, procedures, and practices that companies use for financial accounting and reporting in the United States. |
| Income Statement | Summarizes the results of a company's operating activities for a specific time period; shows revenues, expenses, and net income (or net loss) |
| Independence | In the process of evaluating ideas, the critical thinker must rely on his own conclusions rather than those of others |
| Integrated Accounting System | Means by which accounting information about a company's activities is identified, measured, recorded, and summarized so that it can be communicated in an accounting report. |
| Internal Users | Managers and employees within the company |
| International Financial Reporting Standards | International Accounting Standards Board (IASB) has issued nearly 50 standards covering issues such as accounting for inventories, property and equipment, and the results of a company's operations. |
| Liabilities | A company's economic obligations (debts) to its creditors (people outside the company such as banks and suppliers) and to its employees. |
| Management Accounting | Involves identifying, measuring, recording, summarizing, and then communicating economic information about a company to internal users for management decision-making. |
| Manufacturing Companies | Make their products and then sell these products to their customers |
| Merchandise Companies | Purchase goods (sometimes referred to as merchandise or products) for resale to their customers |
| Net Income | The difference between revenues and expenses |
| Net Loss | Arises when expenses are greater than revenue |
| Objectivity | The quality of being unbiased |
| Operating | Refers to the set of activities that the company engages in to conduct its business according to its plan |
| Owner's Equity | Owner's current investment in the assets of the company, which includes owner's contributions to to the company and any earnings (net income) that the owner leaves in (or invests in) the company |
| Partnership | Company owned by two or more individuals (sometimes hundreds of individuals) who each invest capital, time, and/or talent into the company and share in the profits and losses of the company |
| Partnership Agreement | Contract of the responsibilities, obligations, and benefits of partners. In 2006, just under 9% of all companies |
| Planning | Establishes the company's goals and the means of achieving these goals |
| Profit | Commonly referred to as net income; difference between the cash and credit sales of a company (revenues) and its total costs (expenses). |
| Revenues | Prices charged to a company's customers for the goods or services the company provides to them |
| Service Companies | Perform services or activities that benefit individuals or business customers |
| Sole Proprietorship | Company owned by one individual who is the sole investor of capital into the company (usually the sole owner also acts as the manager of the company). In 2006, about 72% of all companies |
| Solvency | A company's long-term ability to pay its debts as they come due |
| Solvent | Remaining solvent means that the company can pay off its debts |
| Statement of Changes in Owner's Equity | A company's integrated accounting system frequently provides a supporting financial statement to explain the amount shown in the owner's equity section of the company's balance sheet |
| Stockholders' Equity | A corporation's owners' equity |
| Wholesalers | Type of merchandising company that sells their goods primarily to retailers or other commercial users |
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