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35 terms

Principles of Accounting AC 111 Chapter 1 Vocab

bold terms and ideas
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Accounting
"an information system that measures, processes, and communicates financial information about an economic entity"
Business
"an economic unit that aims to sell goods and services to customers at prices that will provide an adequate return to its owners"
Profitability
"the ability to earn enough income to attract and hold investment capital"; commonly measured in terms of earnings or income
Liquidity
"the ability to have enough cash to pay debts when they are due"; commonly measured in terms of cash flows
Operating Activities
"selling goods and services to customers, employing managers and workers, buying and producing goods and services, and paying taxes."
Investing Activities
"spending the capital a company receives in productive ways that will help it achieve its objectives" i.e. buying land, buildings, equipment
Financing Activities
"obtaining adequate funds, or capital, to begin operations and to continue operating" i.e. obtaining capital from creditors, etc.
Performance Measure
an important function of accounting indicating whether managers are achieving their business goals and whether business activities are well managed
Financial Analysis
the evaluation and interpretation of financial statements and performance measures
Management Accounting
provides INTERNAL decision makers with information about operating, investing, and financing activities
Financial Accounting
generates reports and communicates them to EXTERNAL decision makers so they can evaluate how well the business has achieved its goals
Financial Statements
reports generated by Financial Accounting; a central feature of accounting
Management Information System (MIS)
the interconnected subsystems that provide the info needed to run a business; i.e. the accounting information system is the most important
Ethics
"a code of conduct that applies to everyday life; it addresses the question of whether actions are right or wrong"
Fraudulent financial reporting
"the intentional preparation of misleading financial statements"
Sarbanes - Oxley Act
passed by Congress in 2002 to regulate financial reporting and the accounting profession
Management
"the people who are responsible for operating a business and meeting its goals of profitability and liquidity"; one of the most important users of accounting information
Basic Management Functions
Financing, investing, producing, marketing, managing employees, providing information to decision makers
Direct Financial Interest
includes those such as creditors and investors
Creditors and Investors
the primary external users of accounting information
Managers
internal users of accounting information
Indirect Financial Interest
includes tax authorities, regulatory agencies, as well as other groups
Securities and Exchange Commission (SEC)
group set up by Congress to protect the public and regulate the issuing, buying and and selling of stocks in the USA
Questions to Ask to Make an accounting measurement:
What is measured? (Financial Accounting uses money to gauge the impact of business transactions)
When should the measurement be made?
What value should be placed on what is measured?
How should what is measured be classified?
Business Transactions
"economic events that affect a business's financial position"
Money Measure
the concept that all business transactions are recorded in terms of money
Exchange Rate
the value of one currency in terms of another
Separate Entity
a business that must be distinct from its owners, creditors, and customers; separate accounts
Sole Proprietorship
"a business owned by one person; the owner takes all the profits or losses of the business and is liable for all its obligations"; represents the largest # of businesses in the USA
Partnership
like a sole proprietorship but has more than one owner that share the profits or losses of the business accounting to a prearranged formula; all liable
Corporation
a business unit chartered by the state and legally separate from its owners (stockholders); owners enjoy limited liability
Financial Position
"a company's economic resources. . . and the claims against those resources at a particular time"
The Accounting Equation
Assets = Liabilities + Owner's Equity
or A = L + OE
Assets
"the economic resources of a company that are expected to benefit the company's future operations"; (can be monetary or non-monetary, physical or nonphysical)
Liabilities
"a business's present obligations to pay cash, transfer assets, or provide services to other entities in the future"