AccountRecord 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

Articulation

AssetEconomic resource used by a business for the production of 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.

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

CreditorIndividual or institution that has 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)

ExpenseAn economic sacrifice (decrease in assets or increase in liabilities) that is incurred in the process of generating revenue

Financial accountingAccounting information designed to satisfy the needs of an organization’s external users, including business owners, creditors, and government agencies.

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 transactions associated with owners and creditors; also one of the three categories of cash inflows and outflows shown on the statement of cash flows. This category of cash activities shows the amount of cash provided by these resource providers and the amount of cash that is returned to them

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 conceptActual price paid for an asset when it was 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 measures the difference between the asset increases and the asset decreases associated with running a business. This definition is expanded in subsequent chapters as additional relationships among the elements of the financial statements are introduced

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

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

InvestorsCompany or individual who gives assets or services and receives a security certificate 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 assetsPortion of the assets remaining after the creditors’ claims have been satisfied (i.e., Assets - Liabilities - Net assets); also called equity or residual interest

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 activitiesOne of the three categories of cash inflows and outflows shown on the statement of cash flows; show the amount of cash generated by revenue and the amount of cash spent for expenses

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

Price-earnings ratioRatio of the selling price per share to the earnings per share; generally, a higher P/E ratio indicates that investors are optimistic about a company’s future

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.

Residual interestPortion of the assets remaining after the creditors’ claims have been satisfied (Assets - Liabilities - Residual Interest); also called equity or net assets

Retained earningsIncrease in equity that results from the retention of assets obtained through the operation of the business.

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

StokeholdersOwners of a corporation

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.