Like this study set? Create a free account to save it.

Sign up for an account

Already have a Quizlet account? .

Create an account


= a system that measures the business's activities in financial terms, provides written reports & financial statements about those activities, & communicates these reports to decision makers & others

Types of Business Organizations

1) Sole Proprietorship
2) Partnership
3) Corporation
4) Liability Corporation (LLC)

Sole Proprietorship

= a type of business organization that has 1 owner, who is personally liable for paying the business' debts
- easy to form b/c no filing or agreement necessary


= a form of business organization that has at least 2 owners (partners), who are usually personally liable for the partnership's debts
- requires partnership agreement to define terms of partnership


= a type of business organization that is owned by stockholders, who usually are not personally liable for the corporation's debts & do not have input into business decisions
- more difficult to form than sole proprietorships or partnerships b/c requires filing to be recognized

Limited Liability Corporation (LLC)

= a type of business owned by a limited # of stockholders, who are liable only to the extent of their investment in the firm & who do have input in business decisions
- requires filing articles of incorporation

Business Organization Classifications

1) Service Company
2) Merchandise Company
3) Manufacturer

Service Company

= a business that provides a service
- ex: limo service

Merchandise Company

= a business that buys a product from a manufacturing company to sell to its customers
- ex: Target


= a business that makes a product & sells it to its customer
- ex: Intel, Ford

Functions of the Accounting Process

1) Analyzing: looking at what happened & how the business was affected
2) Recording: putting info into the accounting system
3) Classifying: grouping all the same activities (e.g., purchases) together
4) Summarizing: totaling the results
5) Reporting: issuing the statements that tell the results of the previous functions
6) Interpreting: examining the statements to determine how the various pieces of info they contain relate to each other
7) Communication: providing reports & financial statements to people who are interested in the info

Generally Accepted Accounting Principles (GAAP)

= the procedures & guidelines that must be followed during the accounting process

International Financial Reporting Standards (IFRS)

= a group of accounting standards & procedures that, if adopted by the US, could replace GAAP


= the recording (record keeping) function of the accounting process


= properties (resources) of value owned by a business (e.g., cash, land, supplies, equipment)


= the rights or financial claim of creditors (liabilities) & owners (owner's equity) who supply the assets to a firm

Relationship b/w Assets & Equity

Assets = Equities
→ total value of items owned by business = total claims against the assets


= obligations that come due in the future; the financial rights or claims of creditors to assets
- ex: by computer on account from Dell to be paid in 10 days ⇒ liability


= someone who has a claim to assets
- ex: by computer on account from Dell to be paid in 10 days → Dell = creditor

Basic Accounting Equation

Assets = Liabilities + Owner's Equity
→ total value of all a firm's assets = combined total value of the financial claims of creditors (liabilities) & of owners (owner's equity)

Owner's Equity

= rights or financial claims to assets of a business by business' owner(s)
→ Owner's Equity = Assets - Liabilities
- creditors have 1st claim to assets


= the owner's current investment, or equity, in the company

Shift in Assets

= a shift that occurs when the composition of the assets has changed but the total of the assets remains the same


= a type of asset acquired by a firm; have much shorter life than equipment

Accounts Payable

= amounts owed to creditors that result from the purchase of goods or services on account
→ a liability

Balance Sheet

aka Statement of Financial Position
= a statement, as of a particular date, that shows the amount of assets owned by a business & the amount of claims (liabilities & owner's equity) against these assets
- last financial statement to be prepared


= an amount earned by performing services for customers or selling goods to customers
- can be in the form of cash or accounts receivable
- subdivision of owner's equity → as revenue ↑, owner's equity↑

Accounts Receivable

= an asset that indicates amounts owed by customers


= a cost incurred in running a business by consuming goods or services in producing revenue
- subdivision of owner's equity → as expenses ↑, ↓ owner's equity

Net Income

= when revenue > expenses ⇒ net income

Net Loss

= when revenue < expenses ⇒ net loss


= a subdivision of owner's equity that records money or other assets an owner withdraws from a business for personal use

Expanded Accounting Equation

Assets = Liabilities + Capital - Withdrawals + Revenue - Expenses

Subdivisions of Owner's Equity

1) Capital
2) Withdrawals
3) Revenue
4) Expenses

Income Statement

= an accounting statement that details the performance of a firm (revenue - expense ⇒ net income/loss) for a specific period of time
- usually 1, 3, 6, or 12 mths.; cannot cover > 1 yr.
- 1st financial statement to be prepared

Statement of Owner's Equity

= a financial statement that reveals changes in capital by summarizing effects of all subdivisions of owner's equity (capital, withdrawals, revenue, expenses) on beginning capital
- beginning capital + additional investments - withdrawals +/- net income/loss = ending capital
- ending capital figure placed on balance sheet

Ending Capital

= Beginning Capital + Additional Investments + Net Income - Withdrawals OR
= Beginning Capital + Additional Investments - Net Loss - Withdrawals

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions and try again


Reload the page to try again!


Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

Voice Recording