Ch 1 Vocabulary Flashcards
(26 cards)
Accounting
The process of identifying, recording, and communicating the economic events of a business to interested users of the information. p 4
Accounting Equation
The equation that states that Assets = Liabilities + Shareholder’s Equity. p 17
Assets
The resources owned or controlled by a business that provide future economic benefits. p 11
Corporation
A business organized as a separate legal entity having ownership divided into transferable shares held by shareholders. p 7
Deficit
A negative balance in retained earnings as a result of accumulated losses from the prior and current periods exceeding the profits. p 16
Dividends
The distribution of retained earnings from a corporation to its shareholders, often in the form of cash. p 11
Expenses
The decrease in economic benefits that result from the costs of assets consumed or services used in ongoing operations to generate revenue. p 12
Financing Activities
Activities that include (1) borrowing (or repaying) cash to lenders, and (2) issuing (or reacquiring) shares or paying dividends to investors. p 13
Fiscal Year
An accounting period that is one year long. p 14
Generally Accepted Accounting Principles (GAAP)
A general guide, having substantial authoritative support, that describes how economic events should be recorded and reported for financial reporting purposes. p 9
Income Statement
(also known as Statement of Earnings or Statement of Profit and Loss) A financial statement that presents the revenues and expenses and resulting profit or loss of a company for a specific period of time. p 15
Investing Activities
Activities that include purchasing and disposing of long-lived assets such as property, plant and equipment and long term investments. p 13
Liabilities
The debts and obligations of a business. Liabilities are claims of lenders and other creditors on the assets of a business. p 10
Loss (also known as net loss)
the amount by which expenses are more than revenues. The opposite of profit. p 12
Operating Activities
Activities that result from day-to-day operations and include revenues and expenses and related accounts such as receivables, supplies, inventory, and payables. p 13
Partnership
A business owned by more than one person. p 7
Profit (also known as net income or net earnings)
the amount by which revenues are more than expenses. p 12
Proprietorship
A business owned by one person. p 7
Reporting entity concept
The concept that economic activity that can be identified with a particular company must be kept separate and distinct from the activities of the owner(s) and of all other economic entities. p 7
Retained Earnings
The amount of accumulated profit (less losses, if any) from the prior and current periods, that has been kept in the corporation for future use and not distributed to shareholders as dividends. p 16
Revenue
(also known as income) The increase in economic benefits that result from the operating activities of a business, such as the sale of a product or provision of a service. p 11
Share Capital
Shares representing the ownership interest in a corporation. If only one class of shares exists, it is known as common shares. p 11
Shareholders’ Equity
The shareholders’ claim on total assets, represented by the investments of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the company. p 16
Statement of cash flows
A financial statement that provides information about the cash inflow (receipts) and cash outflows (payments) for a specific period of time. p 19
