WHAT IS ACCOUNTING?ACCOUNTING The information system that identifies, records, and communicates the economic events of an organization to interested users. (p. 4). KIESO

p. 6 Information system designed to capture and communicate a businesss financial condition and financial performance to decision makers inside and outside the organization. PATRICA

An information system that measures, processes, and communicates financial information about an economic entity. (LO1) NEEDLES

Information and measurement system that identifies, records, and communicates relevant information about a companys business activities. (p. 4)WILD

The information system that measures business activities, processes that information into reports, and communicates the results to decision makers.HORNGREN

An information system that provides reports to stakeholders about the economic activities and condition of a business. (7)WARREN

Service- based profession that provides reliable and relevant financial information useful in making decisions. p. 2EDMOND

A system of gathering financial information about a business and reporting this information to users.COLLEGE

A system for providing quantitative, financial information about economic entities that is useful for making sound economic decisions. Accounting is often called the language of business because it provides the means of recording and communicating business activities and the results of those activities.ALBRECHT

ANALYZING (5)Looking at events that have taken place and thinking about how they affect the business.COLLEGE(8)

PROCESSING (34)Recognizing the effect of transactions on the assets, liabilities, owners equity, revenues, and expenses of a business.COLLEGE(8)

CLASSIFYING (5)Sorting and grouping similar items together rather than merely keeping a simple, diary- like record of numerous events.COLLEGE(8)

RECORDING (5)Entering financial information about events affecting the company into the accounting system.COLLEGE(8)

SUMMARIZING (5)Bringing the various items of information together to determine a result.COLLEGE(8)

REPORTING (5)Telling the results of the financial information.COLLEGE(8)

INTERPRETING (5)Deciding the meaning and importance of the information in various reports.COLLEGE(8)

BOOKKEEPINGA part of accounting that involves only the recording of economic events. (p. 5). KIESO

The process of recording financial transactions and keeping financial records. (LO1) NEEDLES

Part of accounting that involves recording transactions and events, either manually or electronically; also called bookkeeping. (p. 4)WILD

The preservation of a systematic, quantitative record of an activity.ALBRECHT

RECORDKEEPING (P. 4) Part of accounting that involves recording transactions and events, either manually or electronically; also called bookkeeping. (p. 4)WILD(4)

BOOKKEEPER (8)Generally supervises the work of accounting clerks, helps with daily accounting work, and summarizes accounting information.COLLEGE

ACCOUNTANT (8)Designs the accounting information system and focuses on analyzing and interpreting information.COLLEGE(8)

ACCOUNTING CLERK (8)Records, sorts, and files accounting information.COLLEGE(8)

PARA-ACCOUNTANT (8)A paraprofessional who provides many accounting, auditing, or tax services under the direct supervision of an accountant.COLLEGE(8)

CONTROLLER (10)The accountant who oversees the entire accounting process and is the principal accounting officer of a company.COLLEGE(8)

ACCOUNTING SYSTEMThe procedures and processes used by a business to analyze transactions, handle routine bookkeeping tasks, and structure information so it can be used to evaluate the performance and health of the business.ALBRECHT(9)

ACCOUNTING INFORMATION SYSTEMS (10)Accountants in this area design and implement manual and computerized accounting systems.COLLEGE(8)

INPUT (34)Business transactions provide the necessary input for the accounting information system.COLLEGE(8)

OUTPUT (34)The financial statements are the output of the accounting information system.COLLEGE(8)

PRIVATE ACCOUNTINGp. 6 Sector of the accounting profession in which accountants are employed by a single business or nonprofit organization. PATRICA

The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization. (9)WARREN

PUBLIC ACCOUNTINGp. 6 Sector of the accounting profession in which accountants charge fees for services to a variety of organizations. PATRICA

The field of accounting where accountants and their staff provide services on a fee basis. (9)WARREN

CERTIFIED PUBLIC ACCOUNTANTp. 6 Individual who becomes a licensed accounting professional. PATRICA

A public accountant who has met stringent state licensing requirements. (LO7) NEEDLES

Licensed accountants who serve the general public rather than one particular company.HORNGREN

Public accountants who have met a states education, experience, and examination requirements. (10)WARREN

A public accountant who has met certain educational and experience requirements and has passed an examination prepared by the American Institute of Certified Public Accountants.COLLEGE

A special designation given to an accountant who has passed a national uniform examination and has met other certifying requirements. ALBRECHT

CERTIFIED FRAUD EXAMINER (CFE) (9)A forensic accountant who has passed the exam offered by the Association of Certified Fraud Examiners.COLLEGE(8)

CERTIFIED INTERNAL AUDITOR (CIA) (10)An internal auditor who has achieved professional recognition by passing the uniform examination offered by the Institute of Internal Auditors.COLLEGE(8)

CERTIFIED MANAGEMENT ACCOUNTANT (CMA) (10)An accountant who has passed an examination offered by the Institute of Management Accountants.COLLEGE(8)

A private accountant employed by companies, government, and not-for-profit entities, requiring a college degree, two years of experience, and successful completion of a two day examination. (9)WARREN(6)

A certified accountant who works for a single company.HORNGREN(5)

MANAGERIAL ACCOUNTINGThe field of accounting that provides internal reports to help users make decisions about their companies. (p. 6). KIESO

p. 7 Accounting area focused on providing information to assist managers in making business decisions. PATRICA

The process of producing accounting information for internal use by managers. (LO1) NEEDLES

FINANCIAL ACCOUNTING The field of accounting that provides economic and financial information for investors, creditors, and other external users. (p. 7). KIESO

p. 766 Area of accounting that prepares information used by external parties, such as investors, creditors, and regulators. PATRICA

The process of generating and communicating accounting information in the form of financial statements to those outside the organization. (LO1) NEEDLES

Area of accounting aimed mainly at serving external users. (p. 5)WILD

The branch of accounting that focuses on information for people outside the firm.HORNGREN

The branch of accounting that is concerned with recording transactions using generally accepted accounting principles (GAAP) for a business or other economic unit and with a periodic preparation of various statements from such records. (8, 794)WARREN

Includes preparing various reports and financial statements and analyzing operating, investing, and financing decisions.COLLEGE

COST ACCOUNTING (10)Determining the cost of producing specific products or providing services and analyzing for cost effectiveness.COLLEGE(8)

FORENSIC ACCOUNTING (9)A specialized field that combines fraud detection, fraud prevention, litigation support, expert witnessing, business valuations, and other investigative activities.COLLEGE(8)

TAX ACCOUNTING (10)Services focused on tax planning, preparing tax returns, and dealing with the Internal Revenue Service and other governmental agencies.COLLEGE(8)

TAXATION (9)See tax accounting.COLLEGE(8)

MANAGERIAL ACCOUNTING (P. 2)The branch of accounting that focuses on information for internal decision makers of a business.HORNGREN(5)

Area of accounting aimed mainly at serving the decision- making needs of internal users; also called management accounting. (pp. 6 & 732)WILD(4)

MANAGEMENT (OR MANAGERIAL) ACCOUNTING (9) The branch of accounting that uses both historical and estimated data in providing information that management uses in conducting daily operations, in planning future operations, and in developing overall business strategies. (9, 795)WARREN(6)

The area of accounting concerned with providing internal financial reports to assist management in making decisions.ALBRECHT(9)

MANAGEMENT ADVISORY SERVICES (9)Providing advice to businesses on a wide variety of managerial issues.COLLEGE(8)

AUDITAn examination of a companys financial statements in order to render an independent professional opinion about whether they have been presented fairly, in all material respects, in conformity with GAAP. (LO7) NEEDLES

Analysis and report of an organizations accounting system, its records, and its reports using various tests. (p. 12)WILD(4)

An examination of a companys financial records.HORNGREN(5)

AUDITING (9)Reviewing and testing to be certain that proper accounting policies and practices have been followed.COLLEGE(8)

AUDITORS (P. 13)Individuals hired to review financial reports and information systems. Internal auditors of a company are employed to assess and evaluate its system of internal controls, including the resulting reports. External auditors are independent of a company and are hired to assess and evaluate the fairness of financial statements (or to perform other contracted financial services) (p. 13).WILD(4)

AUDIT COMMITTEEA subgroup of a corporations board of directors that is charged with ensuring that the board will be objective in reviewing managements performance; it engages the companys independent auditors and reviews their work. (LO7) NEEDLES

Members of a companys board of directors who are responsible for dealing with the external and internal auditors.ALBRECHT(9)

INTERNAL AUDITING (10)Reviewing the operating and accounting control procedures adopted by management to make sure the controls are adequate and being followed; assuring that accurate and timely information is provided.COLLEGE(8)

INTERNAL AUDITORSAn independent group of experts (in controls, accounting, and operations) who monitor operating results and financial records, evaluate internal controls, assist with increasing the efficiency and effectiveness of operations, and detect fraud.ALBRECHT(9)

EXTERNAL AUDITORSIndependent CPAs who are retained by organizations to perform audits of financial statements.ALBRECHT(9)

THE BUILDING BLOCKS OF ACCOUNTINGETHICS The standards of conduct by which ones actions are judged as right or wrong, honest or dishonest, fair or not fair. (p. 8). KIESO

p. 24 Standards of conduct for judging right from wrong, honest from dishonest, and fair from unfair. PATRICA

A code of conduct that addresses whether actions are right or wrong. (LO1) NEEDLES

Moral principles that guide the conduct of individuals. (4)WARREN(6)

Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest. (pp. 8 & 736)WILD(4)

CODE OF PROFESSIONAL CONDUCTp. 24 Rules established by the American Institute of Certified Public Accountants to govern the ethical performance of professional services by CPAs. PATRICA

A set of guidelines established by the American Institute of Certified Public Accountants (AICPA) to promote high ethical conduct among its membership. p. 64EDMOND(7)

INTERNAL CONTROLSp. 344 Methods an organization uses to protect against theft of assets, to enhance the reliability of accounting information, to promote efficient and effective operations, and to ensure compliance with applicable laws, regulations, and codes of ethical conduct. PATRICA

A companys policies and procedures designed to reduce the opportunity for fraud and to provide reasonable assurance that its objectives will be accomplished. pp. 67, 140EDMOND(7)

CORPORATE GOVERNANCEThe oversight of a corporations management and ethics by the board of directors. (LO7) NEEDLES

DUE CARECompetence and diligence in carrying out professional responsibilities. (LO7)NEEDLES

PROFESSIONAL ETHICSA code of conduct that applies to the practice of a profession. (LO7) NEEDLES

FIDUCIARY RESPONSIBILITY (P. 7)An ethical and legal obligation to perform a persons duties in a trustworthy manner.HORNGREN(5)

RATIONALIZATION 67An element of the fraud triangle that recognizes a human tendency to justify fraudulent or unethical behavior. p. 67EDMOND(7)

PRESSURE 67An element of the fraud triangle that recognizes conditions that motivate fraudulent or unethical behavior. p. 67EDMOND(7)

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)Common standards that indicate how to report economic events. (p. 9). KIESO

p. 23 Accounting measurement and reporting rules to be applied by businesses. PATRICA

The conventions, rules, and procedures that define accepted accounting practice at a particular time. (LO7) NEEDLES

Authoritative guidelines that define accounting practice at a particular time.ALBRECHT(9)

Generally accepted guidelines for the preparation of financial statements. (10)WARREN(6)

Procedures and guidelines developed by the Financial Accounting Standards Board to be followed in the accounting and reporting process.COLLEGE(8)

Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accountants measure, process, and communicate financial information. HORNGREN(5)

Rules that specify acceptable accounting practices. (p. 8)WILD(4)

Rules and regulations that accountants agree to follow when preparing financial reports for public distribution. p. 5EDMOND(7)

GAAP OVALA diagram that represents the flexibility a manager has, within GAAP, to report one earnings number from among many possibilities based on different methods and assumptions.ALBRECHT(9)

GENERALLY ACCEPTED AUDITING STANDARDS (GAAS)Auditing standards developed by the PCAOB for public companies and AICPA for private companies.ALBRECHT(9)

FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) A private organization that establishes generally accepted accounting principles (GAAP). (p. 9). [KIESO]

p. 23 Entity with the primary responsibility (as designated by the Securities and Exchange Commission) of setting underlying rules of accounting in the United States. [PATRICA]

The most important body for developing rules on accounting practice; it issues Statements of Financial Accounting Standards. (LO7) [NEEDLES]

Field 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 fl ows, and statement of changes in equity). p. 363EDMOND(7)

The private organization responsible for establishing the standards for financial accounting and reporting in the United States.ALBRECHT(9)

The authoritative body that has the primary responsibility for developing accounting principles. (10)WARREN(6)

The private organization that determines how accounting is practiced in the United States.HORNGREN(5)

Independent group of full- time members responsible for setting accounting rules. (p. 9)WILD(4)

DISCUSSION MEMORANDUM (5)The first document issued by FASB when developing an accounting standard. This document identifies the pros and cons of various accounting treatments for an event.COLLEGE(8)

EXPOSURE DRAFT (6)This document explains the rules that FASB believes firms should follow in accounting for a particular event. Based on the responses to the exposure draft, the Board will decide if any changes are necessary before issuing a final standard.COLLEGE(8)

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) (6)A standard issued by the Financial Accounting Standards Board. These standards must be followed when preparing financial statements.COLLEGE(8)

SECURITIES AND EXCHANGE COMMISSION (SEC) A governmental agency that oversees U.S. financial markets and accounting standard-setting bodies. (p. 9). KIESO

p. 23 Governmental agency that supervises the work of the Financial Accounting Standards Board and the Public Company Accounting Oversight Board. PATRICA

A governmental agency that regulates the issuing, buying, and selling of stocks. It has the legal power to set and enforce accounting practices for firms whose securities are sold to the general public. (LO2) NEEDLES

The government body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds.ALBRECHT(9)

The government body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds.ALBRECHT(9)

Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public. (p. 9)WILD(4)

INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) An accounting standard-setting body that issues standards adopted by many countries outside of the United States. (p. 9). KIESO

An organization that encourages worldwide cooperation in the development of accounting principles. (LO7) NEEDLES

The committee formed in 1973 to develop worldwide accounting standards.ALBRECHT(9)

Group that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS). (p. 9)WILD(4)

The organization that determines how accounting is practiced internationally.HORNGREN(5)

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (P. 4)Accounting guidelines, formulated by the International Accounting Standards Board, that govern how accountants measure, process, and communicate financial information.HORNGREN(5)

International Financial Reporting Standards (IFRS) are required or allowed by over 100 countries; IFRS is set by the International Accounting Standards Board (IASB), which aims to develop a single set of global standards, to promote those standards, and to converge national and international standards globally. (p. 9)WILD(4)

SARBANES-OXLEY ACT OF 2002 (SOX) Law passed by Congress in 2002 intended to reduce unethical corporate behavior. (p. 8). KIESO

An act of Congress that regulates financial reporting in public corporations. (LO1) NEEDLES

A law passed by Congress in 2002 that gives the SEC significant oversight responsibility and control over companies issuing financial statements and their external auditors.ALBRECHT(9)

An act passed by Congress to help improve reporting practices of public companies.COLLEGE(8)

Created 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. (pp. 12 & 316)WILD(4)

FOREIGN CORRUPT PRACTICES ACT (FCPA)Legislation requiring any company that has publicly- traded stock to have an adequate system of internal accounting controls.ALBRECHT(9)

Public Company Accounting Oversight Board (PCAOB)p. 23 Entity that sets rules for auditors in the United States. PATRICA

A governmental body created by the Sarbanes- Oxley Act to regulate the accounting profession. (LO7) NEEDLES

Board of five full- time members established by the Sarbanes- Oxley Act to oversee the accounting and auditing profession.ALBRECHT(9)

American Institute of Certified Public Accountants(AICPA)The professional association of certified public accountants. (LO7)NEEDLES

The national organization of CPAs in the United States. ALBRECHT(9)

National association that serves the educational and professional interests of members of the public accounting profession; membership is voluntary. p. 64EDMOND(7)

Institute of Management Accountants (IMA)A professional organization made up primarily of management accountants. (LO7) NEEDLES

Governmental Accounting Standards Board (GASB)The board responsible for issuing accounting standards for state and local governments. (LO7) NEEDLES

Internal Revenue Service (IRS)The agency that interprets and enforces the tax laws governing the assessment and collection of revenue for operating the federal government. (LO7) NEEDLES

A government agency that prescribes the rules and regulations that govern the collection of tax revenues in the United States.ALBRECHT(9)

ACCOUNTING MODELThe basic accounting assumptions, concepts, principles, and procedures that determine the manner of recording, measuring, and reporting a companys transactions. ALBRECHT(9)

CONVERGENCEThe process of reducing the differences between GAAP and IFRS. (p. 9). KIESO

RELEVANCE Financial information that is capable of making a difference in a decision. (p. 9). KIESO

Characteristic of financial information stating that information that is helpful in making decisions should be reported. PATRICA

RELIABLEp. 23 Characteristic of financial information stating that information is most useful when it is unbiased and verifiable. PATRICA

COMPARABLEp. 23 Characteristic of financial information stating that information is more useful when it can be compared against information for other companies. PATRICA

CONSISTENTp. 23 Characteristic of financial information stating that information is more useful when it can be compared over time. PATRICA

FAITHFUL REPRESENTATION Numbers and descriptions match what really existed or happenedit is factual. (p. 9). KIESO

COST PRINCIPLE An accounting principle that states that companies should record assets at their cost. (p. 9). KIESO

The idea that transactions are recorded at their historical costs or exchange prices at the transaction date. ALBRECHT(9)

Accounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions. (p. 10)WILD(4)

A principle that states that acquired assets and services should be recorded at their actual cost.HORNGREN(5)

FAIR VALUE PRINCIPLE An accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability). (p. 9). KIESO

MONETARY UNIT ASSUMPTION An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money. (p. 10). KIESO

p. 15 Theoretical concept stating that financial information is reported in the standard monetary denomination of the country in which the business operated. PATRICA

Principle that assumes transactions and events can be expressed in money units. (p. 11)WILD(4)

SEPARATE ENTITY ASSUMPTIONp. 10 Assumption that activities of the business are reported separately from activities of its owners. PATRICA

A business that is treated as distinct from its creditors, customers, and owners. (LO3) NEEDLES

ECONOMIC ENTITY ASSUMPTION An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. (p. 10). KIESO

BUSINESS ENTITY (20)An individual, association, or organization that engages in economic activities and controls specific economic resources.COLLEGE(8)

BUSINESS ENTITY ASSUMPTION (P. 11) Principle that requires a business to be accounted for separately from its owner(s) and from any other entity. (p. 11)WILD(4)

BUSINESS ENTITY CONCEPT (11) A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business. (11)WARREN(6)

The concept that nonbusiness assets and liabilities are not included in the business entitys accounting records.COLLEGE(8)

COST Measure of resources used to acquire an asset or to produce revenue. p. 52EDMOND(7)

COST CONCEPT (11) A concept of accounting that determines the amount initially entered into the accounting records for purchases. (11)WARREN(6)

CONSERVATISM 51A principle that guides accountants in uncertain circumstances to select the alternative that produces the lowest amount of net income. p. 61EDMOND(7)

EXPENSE RECOGNITION PRINCIPLE (P. 11) Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses. (pp. 11 & 364)WILD(4)

FISCAL YEAR (25)Any accounting period of 12 months duration.COLLEGE(8)

ACCOUNTING PERIOD Span of time covered by the financial statements, normally one year, but may be a quarter, a month or some other time span. p. 16EDMOND(7)

ACCOUNTING PERIOD CONCEPT (25)The concept that income determination can be made on a periodic basis.COLLEGE(8)

TIME PERIOD ASSUMPTION (P. 11) Assumption that an organizations activities can be divided into specific time periods such as months, quarters, or years. (pp. 11 & 94)WILD(4)

FAITHFUL REPRESENTATION PRINCIPLE (P. 10)Principle that asserts accounting information is based on the fact that the data faithfully represents the measurement or description of that data. Faithfully represented data are complete, neutral, and free from material error.HORNGREN(5)

FULL DISCLOSURE PRINCIPLE (P. 11) Principle that prescribes financial statements (including notes) to report all relevant information about an entitys operations and financial condition. (p. 11)WILD(4)

GOING CONCERN ASSUMPTIONThe idea that an accounting entity will have a continuing existence for the foreseeable future.ALBRECHT(9)

Principle that prescribes financial statements to reflect the assumption that the business will continue operating. (p. 11)WILD(4)

GOING- CONCERN CONCEPT (P. 10)This concept assumes that the entity will remain in operation for the foreseeable future.HORNGREN(5)

HISTORICAL COSTp. 9 Accounting principle stating that assets are initially measured at the total cost to acquire them. PATRICA

The dollar amount originally exchanged in an arms-length transaction; an amount assumed to reflect the fair market value of an item at the transaction date.ALBRECHT(9)

HISTORICAL COST CONCEPT 13Actual price paid for an asset when it was purchased. pp. 13, 211EDMOND(7)

UNIT OF MEASURE CONCEPT (11) A concept of accounting requiring that economic data be recorded in dollars. (11)WARREN(6)

STABLE MONETARY UNIT CONCEPT (P. 11)The concept that says that accountantsassume that the dollars purchasing power is stable.HORNGREN(5)

SEPARATE ENTITY CONCEPTThe idea that the activities of an entity are to be separated from those of the individual owners.ALBRECHT(9)

REVENUE RECOGNITION PRINCIPLE (P. 10)The principle prescribing that revenue is recognized when earned. (p. 10)WILD(4)

RELIABILITY CONCEPT 13Information is reliable if it can be independently verified. Reliable information is factual rather than subjective. p. 13EDMOND(7)

OBJECTIVITY CONCEPT (11) A concept of accounting that requires accounting records and the data reported in financial statements be based on objective evidence. (11)WARREN(6)

MEASUREMENT PRINCIPLE (P. 10) Accounting information is based on cost with potential subsequent adjustments to fair value; see also cost principle. (p. 10)WILD(4)

MONETARY MEASUREMENTThe idea that money, as the common medium of exchange, is the accounting unit of measurement, and that only economic activities measurable in monetary terms are included in the accounting model.ALBRECHT(9)

MATCHING CONCEPT (18) A concept of accounting in which expenses are matched with the revenue generated during a period by those expenses. (18, 104)WARREN(6)

Process of matching expenses with the revenues they produce; three ways to match expenses with revenues include matching expenses directly to revenues, matching expenses to the period in which they are incurred, and matching expenses systematically with revenues. pp. 51, 182EDMOND(7)

MATCHING PRINCIPLE (P. 11) Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses. (pp. 11 & 364)WILD(4)

ENTITYAn organizational unit (a person, partnership, or corporation) for which accounting records are kept and about which accounting reports are prepared.ALBRECHT(9)

An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit.HORNGREN(5)

BUSINESSAn economic unit that aims to sell goods and services to customers at prices that will provide an adequate return to its owners. (LO1) NEEDLES

An organization operated with the objective of making a profit from the sale of goods or services.ALBRECHT(9)

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers. (2)WARREN(6)

BUSINESS STAKEHOLDER (4)A person or entity who has an interest in the economic performance of a business. (4)WARREN(6)

PROPRIETORSHIP A business owned by one person. (p. 10). KIESO

p. 4 Business owned by one individual. PATRICA

A business that is owned by one person and that is not incorporated. (LO4) NEEDLES

A business owned by one individual. (3)WARREN(6)

Business owned by one person that is not organized as a corporation; also called proprietorship. (p. 11)WILD(4)

A business with a single owner.HORNGREN(5)

A type of ownership structure in which one person owns the business.COLLEGE(8)

Business owned by one person that is not organized as a corporation; also called proprietorship. (p. 11)WILD(4)

PARTNERSHIP A business owned by two or more persons associated as partners. (p. 11). KIESO

p. 506 An unincorporated business owned by two or more individuals. PATRICA

A business that is owned by two or more people and that is not incorporated. (LO4) NEEDLES

An unincorporated business form consisting of two or more persons conducting business as co- owners for profit. (3, 527)WARREN(6)

A type of ownership structure in which more than one person owns the business.COLLEGE(8)

Unincorporated association of two or more persons to pursue a business for profit as co- owners. (pp. 11 & 480)WILD(4)

A business with two or more owners and not organized as a corporation.HORNGREN(5)

LIMITED-LIABILITY PARTNERSHIP (P. 6)Company in which each partner is only liable for his or her own actions or those under his or her control.HORNGREN(5)

MUTUAL AGENCY (P. 6)The ability of partners in a partnership to commit other partners and the business to a contract.HORNGREN(5)

CORPORATION A business organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock. (p. 11). KIESO

p. 5 Legal and accounting entity that sells shares of stock to owners. PATRICA

A business unit granted a state charter recognizing it as a separate legal entity having its own rights, privileges, and liabilities distinct from those of its owners. (LO4) NEEDLES

A business organized under state or federal statutes as a separate legal entity. (3)WARREN(6)

A type of ownership structure in which stockholders own the business. The owners risk is usually limited to their initial investment, and they usually have very little influence on the business decisions.COLLEGE(8)

Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders. (pp. 12 & 508)WILD(4)

A business owned by stockholders. A corporation begins when the state approves its articles of incorporation and the first share of stock is issued. It is a legal entity, an artificial person, in the eyes of the law.HORNGREN(5)

AUTHORIZATION (P. 7)The acceptance by the state of the Corporate by laws.HORNGREN(5)

ARTICLES OF INCORPORATION (P. 6)The rules approved by the state that govern the management of the corporation.HORNGREN(5)

CHARTER (P. 6)Document that gives the states permission to form a corporation.HORNGREN(5)

SHARES (P. 12) Equity of a corporation divided into ownership units; also called stock. (p. 12)WILD(4)

STOCK (P. 12) Equity of a corporation divided into ownership units; also called stock. (p. 12)WILD(4)

A certificate representing ownership interest in a corporation. The holders of stock are called stockholders or shareholders.HORNGREN(5)

STOCKHOLDER (P. 6)A person who owns stock in a corporation. Also called a shareholder.HORNGREN(5)

Owners of a corporation; also called stockholders. (p. 12)WILD(4)

The owners of a corporation.ALBRECHT(9)

Owners of a corporation. pp. 9, 291EDMOND(7)

SHAREHOLDER (P. 6)A person who owns stock in a corporation. Also called a stockholder. HORNGREN(5)

Owners of a corporation; also called stockholders. (p. 12)WILD(4)

LIMITED LIABILITY COMPANY (LLC) (4) A business form consisting of one or more persons or entities filing an operating agreement with a state to conduct business with limited liability to the owners, yet treated as a partnership for tax purposes. (4, 528)WARREN(6)

Company in which each member is only liable for his or her own actions or those under his or her control.HORNGREN(5)

NONPROFIT ORGANIZATIONAn entity without a profit objective, oriented toward providing services efficiently and effectively.ALBRECHT(9)

Organization that has been approved by the Internal Revenue Service to operate for a religious, charitable, or educational purpose.HORNGREN(5)

MANUFACTURING BUSINESS (3) A type of business that changes basic inputs into products that are sold to individual customers. (3)WARREN(6)

A business that makes a product to sell.COLLEGE(8)

Companies that make the goods they sell to customers. p. 21EDMOND(7)

MERCHANDISING BUSINESS (3) A type of business that purchases products from other businesses and sells them to customers. (3)WARREN(6)

A business that buys products to sell.COLLEGE(8)

Companies that buy and resell merchandise inventory. p. 21EDMOND(7)

SERVICE BUSINESS (3) A business providing services rather than products to customers. (3)WARREN(6)

A business that provides a service.COLLEGE(8)

Organizations such as accounting and legal firms, dry cleaners, and insurance companies that provide services to consumers. p. 21EDMOND(7)

THE BASIC ACCOUNTING EQUATIONBUSINESS TRANSACTIONSEconomic events that affect a businesss financial position. (LO3) NEEDLES

An economic event or condition that directly changes an entitys financial condition or directly affects its results of operations. (12)WARREN(6)

An economic event that has a direct impact on the business.COLLEGE(8)

An event that affects the financial position of a particular entity and can be measured and recorded reliably.HORNGREN(5)

Particular event that involves the transfer of something of value between two entities. p. 9EDMOND(7)

Exchange of goods or services between entities (whether individuals, businesses, or other organizations), as well as other events having an economic impact on a business.ALBRECHT(9)

EVENTS (P. 15) Happenings that both affect an organizations financial position and can be reliably measured. (p. 15)WILD(4)

ACCOUNTING EVENT Economic occurrence that causes changes in an enterprises assets, liabilities, or equity. p. 9EDMOND(7)

ASSET EXCHANGE TRANSACTION 11A transaction that decreases one asset while increasing another asset so that total assets do not change; for example, the purchase of land with cash. pp. 11, 14EDMOND(7)

A transaction that decreases one asset while increasing another asset so that total assets do not change; for example, the purchase of land with cash. pp. 11, 14EDMOND(7)

ASSET SOURCE TRANSACTION 10Transaction 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). pp. 10, 44EDMOND(7)

ASSET USE TRANSACTION 11Transaction that decreases an asset and a claim on assets; the three types are distributions (transfers to owners), liability payments (to creditors), or expenses (used to operate the business). pp. 11, 45EDMOND(7)

Transaction that decreases an asset and a claim on assets; the three types are distributions (transfers to owners), liability payments (to creditors), or expenses (used to operate the business). pp. 11, 45EDMOND(7)

CLAIMS EXCHANGE TRANSACTION 46Transaction that decreases one claim and increases another so that total claims do not change. For example, the accrual of interest expense is a claims exchange transaction; liabilities increase, and the recognition of the expense causes retained earnings to decrease. p. 46EDMOND(7)

BASIC ACCOUNTING EQUATION Assets = Liabilities + Owners Equity. (p. 12). KIESO

p. 9 Basic equation stating that assets equal liabilities plus owners equity. PATRICA

Assets = Liabilities + Owners Equity. (LO5) NEEDLES

Equality involving a companys assets, liabilities, and equity; Assets = Liabilities + Equity; also called balance sheet equation. (p. 14)WILD(4)

An algebraic equation that expresses the relationship between assets (resources), liabilities (obligations), and owners equity (net assets, or the residual interest in a business after all liabilities have been met): Assets = Liabilities + Owners Equity.ALBRECHT(9)

Assets = Liabilities + Owners Equity (12)WARREN(6)

The accounting equation consists of the three basic accounting elements: Assets = Liabilities + Owners Equity.COLLEGE(8)

The basic tool of accounting, measuring the resources of the business and the claims to those resources: Assets =Liabilities + Equity.HORNGREN(5)

Expression of the relationship between the assets and the claims on those assets. p. 8EDMOND(7)

EXPANDED ACCOUNTING EQUATION Assets = Liabilities + Owners Capital - Owners Drawings + Revenues - Expenses. (p. 14). KIESO

Assets = Liabilities + Equity; Equity equals [Owner capital - Owner withdrawals + Revenues - Expenses] for a non-corporation; Equity equals [Contributed capital + Retained earnings + Revenues - Expenses] for a corporation where dividends are subtracted from retained earnings. (p. 14)WILD(4)

ASSETS Resources a business owns. (p. 12). KIESO

Measurable economic resource owned by the business that is likely to provide future benefits. PATRICA

The economic resources of a company that are expected to benefit future operations. (LO5) NEEDLES

An item that is owned by a business and will provide future benefits.COLLEGE(8)

An economic resource that is expected to be of benefit in the future.HORNGREN(5)

Economic resources that are owned or controlled by a company.ALBRECHT(9)

The resources owned by a business. (12, 51)WARREN(6)

Resources a business owns or controls that are expected to provide current and future benefits to the business. (p. 14)WILD(4)

Economic resources used by a business to produce revenue. p. 7EDMOND(7)

CURRENT ASSETSCash and other assets that can be easily converted to cash within a year. ALBRECHT(9)

PRODUCTIVE ASSETS 17Assets used to operate the business; frequently called long- term assets. p. 17EDMOND(7)

LONG- TERM ASSETSAssets that a company needs in order to operate its business over an extended period of time.ALBRECHT(9)

RETURN ON ASSETSA ratio that shows how efficiently a company is using its assets to produce income; Net Income/Average Total Assets.

Ratio reflecting operating efficiency; defined as net income divided by average total assets for the period; also called return on assets or return on investment. (p. 605)WILD(4)

ACCOUNT RECEIVABLE (15) A claim against the customer created by selling merchandise or services on credit. (15, 63, 394)WARREN(6)

The right to receive cash in the future from customers to whom the business has sold goods or for whom the business has performed services.HORNGREN(5)

An amount owed to a business by its customers as a result of the sale of goods or services.COLLEGE(8)

Expected future cash receipt arising from permitting a customer to buy now and pay later; typically a relatively small balance due within a short time period. pp. 44, 70EDMOND(7)

CLAIMS 8Owners and creditors interests in a businesss assets. p. 8EDMOND(7)

LIABILITIES Creditor claims on total assets. (p. 13). KIESO

p. 9 Measurable and probable obligations that require the business to pay goods or services to others in the future. PATRICA

A businesss present obligations to pay cash, transfer assets, or provide services to other entities in the future. (LO5) NEEDLES

Obligations to pay cash, transfer other assets, or provide services to someone else.ALBRECHT(9)

The rights of creditors that represent debts of the business. (12, 51)WARREN(6)

Economic obligations (debts) payable to an individual or an organization outside the business.HORNGREN(5)

Creditors claims on an organizations assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events. (p. 14)WILD(4)

Obligations of a business to relinquish assets, provide services, or accept other obligations. p. 8EDMOND(7)

Something owed to another business entity.COLLEGE(8)

CURRENT LIABILITIESLiabilities expected to be satisfied within a year or the current operating cycle, whichever is longer.ALBRECHT(9)

LONG- TERM LIABILITIESLiabilities that are not expected to be satisfied within a year.ALBRECHT(9)

ACCOUNT PAYABLE (14)The liability created by a purchase on account. (14)WARREN(6)

A liability backed by the general reputation and credit standing of the debtor.HORNGREN(5)

An unwritten promise to pay a supplier for assets purchased or services received.COLLEGE(8)

CREDITORS (P. 3)Those to whom a business owes money.HORNGREN(5)

Individuals or institutions that have loaned goods or services to a business. p. 7EDMOND(7)

SALARIES PAYABLE 46Amounts of future cash payments owed to employees for services that have already been performed. p. 46EDMOND(7)

NOTES PAYABLE (20)A formal written promise to pay a supplier or lender a specified sum of money at a definite future time.COLLEGE(8)

OWNERS EQUITY The ownership claim on total assets. (p. 13). KIESO

Difference between the assets the business owns and the liabilities the business owes. It represents the owners stake in the business. PATRICA

The claims of the owner of a company to the assets of the business. (LO5) NEEDLES

The owners right to the assets of the business. (12, 51)WARREN(6)

The amount by which the business assets exceed the business liabilities.COLLEGE(8)

The claim of a companys owners to the assets of the business. For a corporation, owners equity is called shareholders or stockholders equity.HORNGREN(5)

The ownership interest inthe net assets of an entity; equals total assets minus total liabilities.ALBRECHT(9)

NET WORTH (20)Another term for owners equity, the amount by which the business assets exceed the business liabilities.COLLEGE(8)

NET ASSETSAssets minus liabilities; owners equity. (LO5) NEEDLES

The owners equity of a business; equal to total assets minus total liabilities. ALBRECHT(9)

CAPITAL (20)Another term for owners equity, the amount by which the business assets exceed the business liabilities.COLLEGE(8)

EQUITY (P. 11)The claim of a companys owners to the assets of the business. Also called owners equity for propriertorships and partnerships and called shareholders equity or stockholders equity for a corporation.HORNGREN(5)

Owners claim on the assets of a business; equals the residual interest in an entitys assets after deducting liabilities; also called net assets. (p. 14)WILD(4)

Particular businesses or other organizations for which financial statements are prepared. p. 6EDMOND(7)

CAPITAL STOCKThe portion of stockholders equity that represents investment by owners in exchange for shares of stock. Also referred to as paid- in capital.ALBRECHT(9)

COMMON STOCK (P. 12)Corporations basic ownership share; also generically called capital stock. (pp. 12 & 510)WILD(4)

Represents the basic ownership of every corporation.HORNGREN(5)

Basic class of corporate stock that carries no preferences as to claims on assets or dividends; certificates that evidence ownership in a company. pp. 9, 294EDMOND(7)

CONTRIBUTED CAPITAL (P. 13)The amount invested in a corporation by its owners, the stockholders. Also called paid- in capital.HORNGREN(5)

STOCKHOLDERS EQUITYThe owners equity section of a corporate balance sheet. ALBRECHT(9)

The claim of a corporations owners to the assets of the business. Also called shareholders equity.HORNGREN(5)

Stockholders equity represents the portion of the assets that is owned by thestockholders. p. 9EDMOND(7)

SHAREHOLDERS EQUITY (P. 11)The claim of a corporations owners to the assets of the business. Also called stockholders equity.HORNGREN(5)

PAID- IN CAPITAL (P. 13)The amount invested in a corporation by its owners, the stockholders. Also called contributed capital.HORNGREN(5)

INVESTMENTS BY OWNER The assets an owner puts into the business. (p. 13). KIESO

OWNER INVESTMENT (P. 14) Assets put into the business by the owner. (p. 14)WILD(4)

INVESTORS 7Company or individual who gives assets or services in exchange for security certificates representing ownership interests. p. 7EDMOND(7)

DRAWINGS Withdrawal of cash or other assets from an unincorporated business for the personal use of the owner(s). (p. 13). KIESO

Withdrawals that reduce owners equity as a result of the owner taking cash or other assets out of the business for personal use.COLLEGE(8)

Distributions of capital by a company to its owner.HORNGREN(5)

Reduce owners equity as a result of the owner taking cash or other assets out of the business for personal use.COLLEGE(8)

Payment of cash or other assets from a proprietorship or partnership to its owner or owners. (p. 14)WILD(4)

REVENUES The gross increase in owners equity resulting from business activities entered into for the purpose of earning income. (p. 13). KIESO

p. 10 Amounts earned when goods or services are delivered to customers. PATRICA

Increases in owners equity that result from operating a business. (LO5) NEEDLES

Increase in a companys resources from the sale of goods or services. ALBRECHT(9)

Increases in owners equity as a result of selling services or products to customers. (14, 51)WARREN(6)

Amounts earned by delivering goods or services to customers. Revenues increase capital.HORNGREN(5)

The economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers. pp. 11, 68EDMOND(7)

The economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers. pp. 11, 68EDMOND(7)

The amount a business charges customers for products sold or services performed.COLLEGE(8)

Gross increase in equity from a companys business activities that earn income; also called sales. (p. 14)WILD(4)

FEES EARNED (15) Revenue from providing services. (15)WARREN(6)

SALES (15) The total amount charged customers for merchandise sold, including cash sales and sales on account. (15, 252)WARREN(6)

RENT REVENUE (15) Money received for rent. (15)WARREN(6)

INTEREST REVENUE (15) Money received for interest. (15)WARREN(6)

EXPENSES The cost of assets consumed or services used in the process of earning revenue. (p. 14). KIESO

p. 98 Dollar amount of resources an entity uses to earn revenues during a period. PATRICA

Decreases in owners equity that result from operating a business. (LO5) NEEDLES

Costs incurred in the normal course of business to generate revenues. ALBRECHT(9)

Assets used up or services consumed in the process of generating revenues. (15, 51)WARREN(6)

The decrease in assets (or increase in liabilities) as a result of efforts to produce revenues.COLLEGE(8)

Decrease in equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers.HORNGREN(5)

Outflows or using up of assets as part of operations of a business to generate sales. (p. 14)WILD(4)

Economic sacrifices (decreases in assets or increase in liabilities) that are incurred in the process of generating revenue. pp. 11, 49, 68EDMOND(7)

Economic sacrifices (decreases in assets or increase in liabilities) that are incurred in the process of generating revenue. pp. 11, 49, 68EDMOND(7)

BOOK VALUEThe value of a company as measured by the amount of owners equity; that is, assets less liabilities. ALBRECHT(9)

MARKET VALUEThe value of a company as measured by the number of shares of stock outstanding multiplied by the current market price of the stock; the current value of a business. ALBRECHT(9)

USING THE ACCOUNTING EQUATIONTRANSACTIONS The economic events of a business that arerecorded by accountants. (p. 14). KIESO

EXTERNAL TRANSACTIONS (P. 15)Exchanges of economic value between one entity and another entity. (p. 15)WILD(4)

INTERNAL TRANSACTIONS (P. 15)Activities within an organization that can affect the accounting equation. (p. 15)WILD(4)

ARMS- LENGTH TRANSACTIONSBusiness dealings between independent and rational parties who are looking out for their own interests.ALBRECHT(9)

FINANCIAL STATEMENTSFINANCIAL STATEMENTSThe primary means of communicating important accounting information to users. They include the income statement, statement of owners equity, balance sheet, and statement of cash flows. (LO1) NEEDLES

Reports such as the balance sheet, income statement, and statement of cash flows, which summarize the financial status and results of operations of a business entity.ALBRECHT(9)

Financial reports that summarize the effects of events on a business. (17)WARREN(6)

Documents that report on a business in monetary amounts, providing information to help people make informed business decisions.HORNGREN(5)

Primary 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. p. 6EDMOND(7)

COMPARATIVE FINANCIAL STATEMENTSFinancial statements in which data for two or more years are shown together.ALBRECHT(9)

ANNUAL REPORTA document that summarizes the results of operations and financial status of a company for the past year and outlines plans for the future.ALBRECHT(9)

Document in which an organization provides information to stockholders, usually on an annual basis. p. 21EDMOND(7)

PRIMARY FINANCIAL STATEMENTS The balance sheet, income statement, and statement of cash flows, used by external groups to assess a companys economic standing.ALBRECHT(9)

NOTESp. 18 Additional information provided to accompany the basic financial statements to assist users in understanding amounts reported on the financial statements or other items that may affect their decisions. PATRICA

ARTICULATION 14Characteristic of financial statements that means they are interrelated. For example, the amount of net income reported on the income statement is added to beginning retained earnings as a component in calculating the ending retained earnings balance reported on the statement of changes in stockholders equity. p. 14EDMOND(7)

ELEMENTS 6Primary components of financial statements including assets, liabilities, equity, contributions, revenue, expenses, distributions, and net income. p. 6EDMOND(7)

REPORTING ENTITIES 6Particular businesses or other organizations for which financial statements are prepared. p. 6EDMOND(7)

RECOGNITION 42Reporting an accounting event in the financial statements. p. 42EDMOND(7)

PUBLIC HEARING (5)Following the issuance of a discussion memorandum, public meetings are often held by FASB to gather opinions on the accounting issue.COLLEGE(8)

INCOME STATEMENT Financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time. (p. 21). KIESO

p. 14 Financial statement that reports the performance of a business for a period of time. PATRICA

A financial statement that summarizes the revenues earned and expenses incurred by a business over an accounting period. (LO6) NEEDLES

A summary of the revenue and expenses for a specific period of time, such as a month or a year. (18)WARREN(6)

Reports the profitability of business operations for a specific period of time.COLLEGE(8)

Financial 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. (p. 19)WILD(4)

Summary of an entitys revenues, expenses, and net income or net loss for a specific period. Also called the statement of earnings or the statement of operations.HORNGREN(5)

The financial statement that reports the amount of net income earned by a company during a period.ALBRECHT(9)

Statement 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. p. 14EDMOND(7)

OPERATING STATEMENT (33)Another name for the income statement, which reports the profitability of business operations for a specific period of time.COLLEGE(8)

STATEMENT OF EARNINGS (P. 21)Summary of an entitys revenues, expenses, and net income or net loss for a specific period. Also called the income statement or the statement of operations.HORNGREN(5)

STATEMENT OF OPERATIONS (P. 21)Summary of an entitys revenues, expenses, and net income or net loss for a specific period. Also called the income statement or statement of earnings.HORNGREN(5)

PROFIT AND LOSS STATEMENT (33)Another name for the income statement, which reports the profitability of business operations for a specific period of time.COLLEGE(8)

NET INCOME The amount by which revenues exceed expenses. (p. 23). KIESO

p. 15 Positive difference between revenues earned during a period and the expenses that were incurred to generate the revenues during the period. PATRICA

The difference between revenues and expenses when revenues exceed expenses. (LO5) NEEDLES

The excess of total revenues over total expenses for the period.COLLEGE(8)

An overall measure of the performance of a company; equal to revenues minus expenses for the period.ALBRECHT(9)

Excess of total revenues over total expenses. Also called net earnings or net profit.HORNGREN(5)

Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings. (p. 14)WILD(4)

Increase in net assets resulting from operating the business. p. 16EDMOND(7)

The amount by which revenues exceed expenses. (18)WARREN(6)

NET LOSS The amount by which expenses exceed revenues.(p. 23). KIESO

p. 16 Result when expenses exceed revenues during a period.PATRICA

The difference between expenses and revenues when expenses exceed revenues. (LO5) NEEDLES

The amount by which expenses exceed revenues. (18)WARREN(6)

The excess of total expenses over total revenues for the period.COLLEGE(8)

Excess of total expenses over total revenues.HORNGREN(5)

Excess of expenses over revenues for a period. (p. 14)WILD(4)

Decrease in net assets resulting from operating the business. p. 16EDMOND(7)

OWNERS EQUITY STATEMENT A financial statement that summarizes the changes in owners equity for a specific period of time. (p. 21). KIESO

p. 16 Financial statement that reports the changes in owners equity during the period. PATRICA

A financial statement that shows the changes in owners equity over an accounting period. (LO6) NEEDLES

A summary of the changes in owners equity that have occurred during a specific period of time, such as a month or a year. (18)WARREN(6)

Reports beginning capital plus net income less withdrawals to compute ending capital.COLLEGE(8)

Report of changes in equity over a period; adjusted for increases (owner investment and net income) and for decreases (withdrawals and net loss). (p. 19)WILD(4)

Summary of the changes in an owners capital account during a specific period.HORNGREN(5)

STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY 16Statement that summarizes the transactions occurring during the accounting period that affected the owners equity. p. 16EDMOND(7)

DIVIDEND 12Transfer of wealth from a business to its owners. p. 12EDMOND(7)

Distributions to the owners (stockholders) of a corporation.ALBRECHT(9)

EARNINGS (LOSS) PER SHARE (EPS)The amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of stock outstanding during the period.ALBRECHT(9)

RETAINED EARNINGSThe amount of accumulated earnings of the business that have not been distributed to owners.ALBRECHT(9)

The amount earned over the life of a business by income- producing activities and kept (retained) for use in the business.HORNGREN(5)

Portion of stockholders equity that includes all earnings retained in the business since inception (revenues minus expenses and distributions for all accounting periods). p. 9EDMOND(7)

STATEMENT OF RETAINED EARNINGSA report that shows the changes in retained earnings during a period of time.ALBRECHT(9)

BALANCE SHEET A financial statement that reports the assets, liabilities, and owners equity at a specific date. (p. 21). KIESO

p. 51 Financial statement that reports the amount of a businesss assets, liabilities, and owners equity at a specific point in time. PATRICA

The financial statement that shows a businesss assets, liabilities, and owners equity as of a specific date. Also called the statement of financialposition. (LO6) NEEDLES

A list of the assets, liabilities, and owners equity as of a specific date, usually at the close of the last day of a month or a year. (18)WARREN(6)

Reports assets, liabilities, and owners equity on a specific date. It is called a balance sheet because it confirms that the accounting equation is in balance.COLLEGE(8)

Financial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date. (p. 19)WILD(4)

An entitys assets, liabilities, and owners equity as of a specific date. Also called the statement of financial position.HORNGREN(5)

The financial statement that reports a companys assets, liabilities, and owners equity at a particular date.ALBRECHT(9)

Statement that lists the assets of a business and the corresponding claims (liabilities and equity) on those assets. p. 17EDMOND(7)

FINANCIAL POSITIONThe economic resources that belong to a company and the claims (equities) against those resources at a particular time. (LO5) NEEDLES

STATEMENT OF FINANCIAL POSITION (34)Another name for the balance sheet, which reports assets, liabilities, and owners equity on a specific date.COLLEGE(8)

An entitys assets, liabilities, and owners equity as of a specific date. Also called the balance sheet.HORNGREN(5)

STATEMENT OF FINANCIAL CONDITION (34)Another name for the balance sheet, which reports assets, liabilities, and owners equity on a specific date.COLLEGE(8)

ACCOUNT FORM (21)The form of balance sheet that resembles the basic format of the accounting equation, with assets on the left side and the liabilities and owners equity sections on the right side. (21, 257)WARREN(6)

REPORT FORM (21) The form of balance sheet with the liabilities and owners equity sections presented below the assets section. (21, 257)WARREN(6)

CLASSIFIED BALANCE SHEETA balance sheet in which assets and liabilities are subdivided into current and long- term categories.ALBRECHT(9)

CASH FLOWSThe inflows and outflows of cash into and out of a business. (LO6) NEEDLES

STATEMENT OF CASH FLOWSA financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time. (p. 21). KIESO

p. 18 Financial statement that reports the businesss cash inflows (receipts) and outflows (payments) by business activity (operating, investing, and financing) for a period of time. PATRICA

A financial statement that shows the inflows and outflows of cash from operating activities, investing activities, and financing activities over an accounting period. (LO6) NEEDLES

The financial statement that reports the amount of cash collected and paid out by a company during a period of time.ALBRECHT(9)

A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year. (18, 692)WARREN(6)

A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing, and financing. (pp. 19 & 632)WILD(4)

Report of cash receipts and cash payments during a period.

HORNGREN(5)

Statement that explains how a business obtained and used cash during an accounting period. p. 17EDMOND(7)

OPERATING ACTIVITIESp. 18 Business activities directly related to earning profits. PATRICA

Activities undertaken by management in the course of running a business. (LO1) NEEDLES

Activities that are part of the day- to- day business of a company.ALBRECHT(9)

Cash inflows and outflows associated with operating the business. These cash flows normally result from revenue and expense transactions including interest. p. 17EDMOND(7)

INVESTING ACTIVITIESp. 18 Business activities involving buying and selling productive resources with long lives. PATRICA

Activities undertaken by management to spend capital in productive ways that will help a business achieve its objectives. (LO1) NEEDLES

Activities associated with buying and selling long- term assets.ALBRECHT(9)

One 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. p. 17EDMOND(7)

FINANCING ACTIVITIESp. 18 Business activities involving borrowing from banks, repaying bank loans, receiving investments from owners, and distributing profits to owners (through withdrawals for proprietors and partnerships and through dividends to stock holders). PATRICA

Activities undertaken by management to obtain adequate funds to begin and to continue operating a business. (LO1) NEEDLES

Activities whereby cash is obtained from or repaid to owners and creditors. ALBRECHT(9)

Cash 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. p. 17EDMOND(7)

ACCOUNTING CYCLEThe procedure for analyzing, recording, classifying, summarizing, and reporting the transactions of a business.ALBRECHT(9)

DOUBLE- ENTRY ACCOUNTINGA system of recording transactions in a way that maintains the equality of the accounting equation.ALBRECHT(9)

DOUBLE- ENTRY BOOKKEEPING 10Method of keeping records that provides a system of checks and balances by recording transactions in a dual format. p. 10EDMOND(7)

DEFERRAL 43Recognition of revenue or expense in a period after the cash is exchanged. p. 43EDMOND(7)

ACCRUAL 43Recognition of events before exchanging cash. p. 44EDMOND(7)

ACCRUAL ACCOUNTING 43Accounting system that recognizes expenses or revenues when they occur regardless of when cash is exchanged. p. 43EDMOND(7)

ACCRUED EXPENSES 46Expenses that are recognized before cash is paid. An example is accrued salaries expense. p. 46EDMOND(7)

UNEARNED REVENUE 53Revenue for which cash has been collected but the service has not yet been performed. p. 53EDMOND(7)

PREPAID ITEMS 52Deferred expenses. An example is prepaid insurance. p. 52EDMOND(7)

PREPAID EXPENSES (14) Items such as supplies that will be used in the business in the future. Also see deferred expenses. (14, 106)WARREN(6)

ACCOUNT (22)A separate record used to summarize changes in each asset, liability, and owners equity of a business.COLLEGE(8)

Records used for classifying and summarizing transaction data; sub- classifications of financial statement elements. p. 7EDMOND(7)

ACCOUNT TITLE (22)Provides a description of the particular type of asset, liability, owners equity, revenue, or expense.COLLEGE(8)

TEMPORARY ACCOUNTS 18Accounts used to collect information for a single accounting period (usually revenue, expense, and distribution accounts). p. 18EDMOND(7)

PERMANENT ACCOUNTS 19Accounts that contain information transferred from one accounting period to the next. p. 19EDMOND(7)

CLOSING Process of transferring balances from temporary accounts (Revenue, Expense, and Dividends) to the permanent account (Retained Earnings). p. 18EDMOND(7)

ADJUSTING ENTRY 46Entry that updates account balances prior to preparing financial statements. pp. 46, 182EDMOND(7)

OWNER, CAPITAL (P. 14)Account showing the owners claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the companys inception; also referred to as equity. (p. 14)WILD(4)

OWNER WITHDRAWALS (P. 14)Account used to record asset distributions to the owner. (See also withdrawals.) (p. 14)WILD(4)

PROFIT (2)The difference between the amounts received from customers for goods or services provided and the amounts paid for the inputs used to provide the goods or services. (2)WARREN(6)

GAINS (LOSSES)Money made or lost on activities outside the normal operation of a company.ALBRECHT(9)

RETURN (P. 26) Monies received from an investment; often in percent form. (p. 26)WILD(4)

INTEREST 7Fee paid for the use of borrowed funds; also refers to revenue from debt securities. pp. 7, 181EDMOND(7)

PERIOD COSTS 51General, selling, and administrative costs that are expensed in the period in which the economic sacrifice is made. pp. 93, 51, 371EDMOND(7)

GROSS PROFIT (GROSS MARGIN)The excess of net sales revenue over the cost of goods sold.ALBRECHT(9)

GENERAL LEDGER 13Complete set of accounts used in accounting systems. p. 13EDMOND(7)

INTERNAL USERS (P. 6) Persons using accounting information who are directly involved in managing the organization. (p. 6)WILD(4)

EXTERNAL USERS (P. 5) Persons using accounting information who are not directly involved in running the organization. (p. 5)WILD(4)

LIQUIDATION 7Process 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. p. 7EDMOND(7)

MANAGEMENTThe people who have overall responsibility for operating a business and meeting its goals. (LO2) NEEDLES

ORGANIZATIONAL STRUCTURE Lines of authority and responsibility.ALBRECHT(9)

MANAGEMENT INFORMATION SYSTEM (MIS)The interconnected subsystems that provide the information needed to run a business. (LO1) NEEDLES

PERFORMANCE MEASURESIndicators of whether managers are achieving business goals and whether business activities are well managed. (LO1) NEEDLES

BUDGETING (10)The process in which accountants help managers develop a financial plan.COLLEGE(8)

COMPREHENSIVE INCOMEA measure of the overall change in a companys wealth during a period; consists of net income plus changes in wealth resulting from changes in investment values and exchange rates.ALBRECHT(9)

CONCEPTUAL FRAMEWORK (P. 9) A written framework to guide the development, preparation, and interpretation of financial accounting information. (p. 9)WILD(4)

CONTROL ACTIVITIES (PROCEDURES)Policies and procedures used by management to meet their objectives.ALBRECHT(9)

CONTROL ENVIRONMENT The actions, policies, and procedures that reflect the overall attitudes of top management about control and its importance to the entity.ALBRECHT(9)

DETECTIVE CONTROLSInternal control activities that are designed to detect the occurrence of errors and fraud.ALBRECHT(9)

PREVENTATIVE CONTROLSInternal control activities that are designed to prevent the occurrence of errors and fraud.ALBRECHT(9)

INTERNAL CONTROL STRUCTURESafeguards in the form of policies and procedures established to provide management with reason able assurance that the objectives of an entity will be achieved.ALBRECHT(9)

COST- BENEFIT CONSTRAINT (P. 12)Notion that only information with benefits of disclosure greater than the costs of disclosure need be disclosed. (p. 12)WILD(4)

HORIZONTAL STATEMENTS MODEL 19Arrangement of a set of financial statements horizontally across a sheet of paper. p. 19EDMOND(7)

INCOME 7Added value created in transforming resources into more desirable states. p. 7EDMOND(7)

INCOME SMOOTHINGThe practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next.ALBRECHT(9)

INDEPENDENT CHECKSProcedures for continual internal verification of other controls.ALBRECHT(9)

INTERNAL EARNINGS TARGETSFinancial goals established within a company.ALBRECHT(9)

MATERIALITY CONSTRAINT (P. 12)Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP. (pp. 12 & 364)WILD(4)

OPPORTUNITY 67An element of the fraud triangle that recognizes weaknesses in internal controls that enable the occurrence of fraudulent or unethical behavior. p. 67EDMOND(7)

PHYSICAL SAFEGUARDSPhysical precautions used to protect assets and records, such as locks on doors, fireproof vaults, password verification, and security guards.ALBRECHT(9)

REALIZATION 42A term that usually refers to actually collecting cash. p. 42EDMOND(7)

RISK (P. 26) Uncertainty about an expected return. (p. 26)WILD(4)

SEGREGATION OF DUTIESA strategy to provide an internal check on performance through separation of authorization of trans actions from custody of related assets, separation of operational responsibilities from record- keeping responsibilities, and separation of custody of assets from accounting personnel.ALBRECHT(9)

VERTICAL STATEMENTS MODEL 61Arrangement of a full set of financial statements on a single page with account titles arranged from the top to the bottom of the page. p. 61EDMOND(7)

EXCHANGE RATEThe value of one currency in terms of another. (LO3) NEEDLES

FRAUDULENT FINANCIAL REPORTINGThe intentional preparation of misleading financial statements. (LO1) NEEDLES

INDEPENDENCEThe avoidance of all relationships that impair or appear to impair an accountants objectivity. (LO7) NEEDLES

INTEGRITYHonesty, candidness, and the subordination of personal gain to service and the public trust. (LO7) NEEDLES

LIQUIDITYHaving enough cash available to pay debts when they are due. (LO1) NEEDLES

The ability of a company to pay its debts in the short run. ALBRECHT(9)

A measure of the ease with which an asset will be converted to cash.COLLEGE(8)

Ability to convert assets to cash quickly and meet short- term obligations. pp. 17, 183, 267EDMOND(7)

PROFITABILITYThe ability to earn enough income to attract and hold investment capital. (LO1) NEEDLES

MONEY MEASUREThe recording of all business transactions in terms of money. (LO3) NEEDLES

OBJECTIVITYImpartiality and intellectual honesty. (LO7) NEEDLES