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A list of key terms with page references concludes each chapter (a complete glossary is at the end of the book and also on the book’s Website).

Key Terms are available at the book’s Website for learning and testing in an online Flashcard Format.

AccountingInformation and measurement system that identifies, records, and communicates relevant information about a company’s business activities.

Accounting equationEquality involving a company’s assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation.

AssetsResources a business owns or controls that are expected to provide current and future benefits to the business.

AuditAnalysis and report of an organization’s accounting system, its records, and its reports using various tests.

Balance sheetFinancial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date.

BookkeepingPart of accounting that involves recording transactions and events, either manually or electronically; also called bookkeeping.

Business entity principlePrinciple that requires a business to be accounted for separately from its owner(s) and from any other entity.

Common stockCorporation’s basic ownership share; also generically called capital stock.

Contributed capitalTotal amount of cash and other assets received from stockholders in exchange for stock; also called paid-in capital.

CorporationBusiness that is a separate legal entity under state or federal laws with owners called shareholders or stockholders.

Cost principleAccounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions.

DividendsCorporation’s distributions of assets to its owners.

EquityOwner’s claim on the assets of a business; equals the residual interest in an entity’s assets after deducting liabilities; also called net assets.

EthicsCodes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest.

EventsHappenings that both affect an organization’s financial position and can be reliably measured.

Expanded accounting equationAssets = Liabilities + Equity; Equity equals [Contributed Capital + Retained Earnings + Revenues – Expenses] for a corporation where dividends are subtracted from Retained Earnings.

ExpensesOutflows or using up of assets as part of operations of a business to generate sales.

External transactionsExchanges of economic value between one entity and another entity.

External usersPersons using accounting information who are not directly involved in running the organization.

Financial accountingArea of accounting mainly aimed at serving external users.

Financial Accounting Standards Board (FASB)Independent group of full-time members responsible for setting accounting rules.

Generally Accepted Accounting Principles (GAAP)Rules that specify acceptable accounting practices.

Going-concern principlePrinciple that requires financial statements to reflect the assumption that the business will continue operating.

IncomeAmount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings.

Income statementFinancial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses.

Internal transactionsActivities within an organization that can affect the accounting equation.

Internal usersPersons using accounting information who are directly involved in managing the organization.

International Accounting Standards Board (IASB)Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS).

LiabilitiesCreditors’ claims on an organization’s assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events.

Managerial accountingArea of accounting mainly aimed at serving the decision-making needs of internal users; also called management accounting.

Monetary unit principlePrinciple that assumes transactions and events can be expressed in money units.

Net incomeAmount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings.

Net lossExcess of expenses over revenues for a period.

Objectivity principlePrinciple that prescribes independent, unbiased evidence to support financial statement information.

PartnershipUnincorporated association of two or more persons to pursue a business for profit as co-owners.

ProprietorshipBusiness owned by one person that is not organized as a corporation; also called proprietorship.

RecordkeepingPart of accounting that involves recording transactions and events, either manually or electronically.

Retained earningsCumulative income less cumulative losses and dividends.

ReturnMonies received from an investment; often in percent form.

Return on assetsRatio reflecting operating efficiency; defined as net income divided by average total assets for the period; also called return on assets or return on investment.

Revenue recognition principleThe principle prescribing that revenue is recognized when earned.

RevenuesGross increase in equity from a company’s business activities that earn income; also called sales.

RiskUncertainty about an expected return.

Sarbanes–Oxley ActCreated the Public Company Accounting Oversight Board, regulates analyst conflicts, imposes corporate governance requirements, enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct, and expands penalties for violations of federal securities laws

Securities and Exchange Commission (SEC)Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public.

ShareholdersOwners of a corporation; also called stockholders.

SharesEquity of a corporation divided into ownership units; also called stock.

Sole proprietorshipBusiness owned by one person that is not organized as a corporation; also called proprietorship.

Statement of cash flowsA financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing, and financing.

Statement of retained earningsReport of changes in retained earnings over a period; adjusted for increases (net income), for decreases (dividends and net loss), and for any prior period adjustment.

StockEquity of a corporation divided into ownership units; also called stock.

StockholdersOwners of a corporation; also called stockholders.