accountsRecords used for the classification and summary of transaction data.

accountingService-based profession that provides reliable and relevant financial information useful in making decisions.

accounting equationExpression of the relationship between the assets and the claims on those assets.

accounting eventEconomic occurrence that causes changes in an enterprise's assets, liabilities, or equity.

accounting periodSpan of time covered by the financial statements, normally one year, but may be a quarter, a month or some other time span.

annual reportDocument in which an organization provides information to stockholders, usually on an annual basis.

articulationA term used to describe interrelationships among the financial statements. For example, the amount of net income reported on the income statement is added to beginning retained earnings as a component in the calculation of the ending retained earnings balance reported on the statement of stockholders' equity.

assetsEconomic resources used by a business to produce revenue.

asset source transactionTransaction that increases an asset and a claim on assets; three types of asset source transactions are acquisitions from owners (equity), borrowings from creditors (liabilities), or earnings from operations (revenues).

balance sheetStatement that lists the assets of a business and the corresponding claims (liabilities and equity) on those assets.

claimsOwners' and creditors' interests in a business's assets.

Code of Professional ConductA set of guidelines established by the American Institute of Certified Public Accountants (AICPA) to promote high ethical conduct among its membership.

common stockBasic class of corporate stock that carries no preferences as to claims on assets or dividends; certificates that evidence ownership in a company.

creditorsIndividuals or institutions that have loaned goods or services to a business.

dividendTransfer of wealth from a business to its owners.

double-entry bookkeepingMethod of keeping records that provides a system of checks and balances by recording transactions in a dual format.

earningsThe difference between revenues and expenses. Same as net income or profit.

elementsPrimary components of financial statements including assets, liabilities, equity, contributions, revenue, expenses, distributions, and net income.

equityPortion of assets remaining after the creditors' claims have been satisfied (i.e., Assets Liabilities Equity); also called residual interest or net assets.

expensesEconomic sacrifices (decreases in assets or increase in liabilities) that are incurred in the process of generating revenue.

financial accountingField of accounting designed to meet the information needs of external users of business information (creditors, investors, governmental agencies, financial analysts, etc.); its objective is to classify and record business events and transactions to facilitate the production of external financial reports (income statement, balance sheet, statement of cash flows, and statement of changes in equity).

Financial Accounting Standards Board (FASB)Privately funded organization with the primary authority for the establishment of accounting standards in the United States.

financial resourcesMoney or credit arrangements supplied to a business by investors (owners) and creditors.

financial statementsPrimary means of communicating the financial information of an organization to the external users. The four general-purpose financial statements are the income statement, statement of changes in equity, balance sheet, and statement of cash flows.

financing activitiesCash inflows and outflows from transactions with investors and creditors (except interest). These cash flows include cash receipts from the issue of stock, borrowing activities, and cash disbursements associated with dividends.

general ledgerComplete set of accounts used in accounting systems.

generally accepted accounting principles (GAAP)Rules and regulations that accountants agree to follow when preparing financial reports for public distribution.

historical cost conceptRecording an asset at the actual price paid for it when purchased.

horizontal statements modelArrangement of a set of financial statements horizontally across a sheet of paper.

incomeAdded value created in transforming resources into more desirable states.

income statementStatement that reports the difference between the revenues and the expenses associated with running a business.

interestFee paid for the use of borrowed funds; also refers to revenue from debt securities.

internal controlsA company's policies and procedures designed to reduce the opportunity for fraud and to provide reasonable assurance that its objectives will be accomplished.

investing activitiesOne of the three categories of cash inflows and outflows shown on the statement of cash flows; includes cash received and spent by the business on productive assets and investments in the debt and equity of other companies.

investorsCompanies or individuals who give assets or services and receive security certificates in exchange.

labor resourcesBoth intellectual and physical labor used in the process of converting goods and services to products of greater value.

liabilitiesObligations of a business to relinquish assets, provide services, or accept other obligations.

liquidationProcess of dividing up the assets and returning them to the resource providers. Creditors normally receive first priority in business liquidations; in other words, assets are distributed to creditors first. After creditor claims have been satisfied, the remaining assets are distributed to the investors (owners) of the business.

liquidityAbility to convert assets to cash quickly and meet short-term obligations.

managerial accountingBranch of accounting that provides information useful to internal decision makers and managers in operating an organization.

manufacturing businessesMakers of goods sold to customers.

marketGathering of people or organizations for the purpose of buying and selling resources.

merchandising businessesCompanies that buy and sell merchandise inventory.

net incomeIncrease in net assets resulting from operating the business.

net lossDecrease in net assets resulting from operating the business.

not-for-profit entitiesOrganizations (also called nonprofit or nonbusiness entities) whose primary motive is something other than making a profit, such as providing goods and services for the social good. Examples include state-supported universities and colleges, hospitals, public libraries, and public charities.

operating activitiesCash inflows and outflows associated with operating the business. These cash flows normally result from revenue and expense transactions including interest.

physical resourcesNatural resources used in the transformation process to create resources of more value.

productive assetsAssets used to operate the business; frequently called long-term assets.

profitValue created by transforming goods and services to more desirable states.

reliability conceptInformation is reliable if it can be independently verified. Reliable information is factual rather than subjective.

reporting entitiesParticular businesses or other organizations for which financial statements are prepared.

retained earningsEquity account that includes all earnings retained in the business since inception (revenues minus expenses and distributions for all accounting periods).

revenueAn economic benefit (an increase in assets or a decrease in liabilities) that is gained by providing goods and services to customers.

service businessesOrganizations---accountants, lawyers, and dry cleaners---that provide services to consumers.

stakeholdersParties interested in the operations of a business, including owners, lenders, employees, suppliers, customers, and government agencies.

statement of cash flowsStatement that explains how a business obtained and used cash during an accounting period.

statement of changes in stockholders’ equityStatement that summarizes the transactions occurring during the accounting period that affected the owners' equity.

stockholdersOwners of a corporation.

stockholders’ equityStockholders' equity represents the portion of the assets that is owned by the stockholders.

transactionParticular event that involves the transfer of something of value between two entities.

usersIndividuals or organizations that use financial information for decision making.