Chapter 1 Flashcards
Company or individual who gives assets or services in exchange for security certificates representing ownership interests.
investor
Group of people or entities organized to buy and sell resources.
market
A service-based profession that provides reliable and relevant financial information useful in making decisions.
accounting
Money or credit supplied to a business by investors (owners) and creditors
financial resources
Individual or organization that has loaned goods or services to a business
creditor
Fee paid for using funds; represents an expense to the borrower and revenue to the lender.
interest
Natural resources businesses transform to create more valuable resources.
physical resources
The intellectual and physical efforts of individuals used in the process of providing goods and services to customers.
labor resources
Parties interested in the operations of a business, including owners, lenders, employees, suppliers, customers, and government agencies.
stakeholders
The branch of accounting focused on the business information needs of external users (creditors, investors
financial accounting
Branch of accounting focused on the information needs of managers and others working within the business
managerial accounting
Organizations (also called nonprofit or nonbusiness organizations) are established primarily for motives other than making a profit, such as providing goods and services for the social good.
not-for-profit entities
Private, independent standard-setting body established by the accounting profession that has been delegated the authority by the SEC to establish most of the accounting rules and regulations for public financial reporting.
Financial Accounting Standards Board (FASB)
Rules and practices that accountants agree to follow in financial reports prepared for public distribution.
generally accepted accounting principles (GAAP)
Businesses or other organizations for which financial statements are prepared.
reporting entities
Key components of financials statements including assets, liabilities, stockholders’ equity, common stock, retained earnings, revenue, expense, and net income.
elements
Economic resource used to produce revenue that is expected to provide future benefit to the business.
asset
Obligations of a business to relinquish assets, provide services, or accept other obligations.
liabilities
Basic class of corporate stock that carries no preferences as to claims on assets or dividends; certificates that evidence ownership in a company.
common stock
represents the portion of the assets that is owned by the stockholders.
stockholders’ equity
Portion of stockholders’ equity that includes all earnings retained in the business since inception (revenues minus expenses and distributions for all accounting periods).
retained earnings
equation of the relationship between the assets and the claims on those assets.
accounting equation
Record of classified and summarized transaction data; component of financial statement elements.
account
Span of time covered by the financial statements, normally one year, but may be a quarter, a month, or some other time span.
accounting period
Business event that involves transferring something of value between two entities.
transaction
Transaction 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).
asset source transaction
Recordkeeping system that provides checks and balances by recording two sides for every transaction.
double-entry accounting (double-entry bookkeeping)
Transaction that decreases one asset while increasing another asset so that total assets do not change; for example, the purchase of land with cash.
asset exchange transaction
The economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers.
revenue
Accounting practice of reporting assets at the actual price paid for them when purchased regardless of estimated changes in market value.
historical cost concept
Process of dividing up an organization’s assets and returning them to the resource providers. In business ____, creditors normally have first priority; after creditor claims have been satisfied, any remaining assets are distributed to the company’s owners (investors).
liquidation
Accounting presumption that a company will continue to operate indefinitely, benefiting from its assets and paying its obligations in full; justifies reporting assets and liabilities in the financial statements.
going concern (assumption)
Refers to a business’s duty to protect and use the assets of the company for the benefit of the owners (the firm’s stockholders).
stewardship
