The Student Success Commons at York County Community College: ACC 111 (Accounting I)

KEY TERMS:

account payable: The liability created by a purchase on account.

account receivable: An asset, which is a claim against the customer created by selling merchandise or services on credit.

accounting: An information system that provides reports to stakeholders about the economic activities and condition of a business.

accounting assumptions: Assumptions that provide the framework upon which accounting standards are constructed.

accounting equation: The equation that shows the relationship among assets, liabilities, and equity; expressed as Assets = Liabilities + Equity.

accounting principles: Principles that provide the framework upon which accounting standards are constructed.

accounting standards: The rules that determine the accounting for individual business transactions.

Accounting Standards Codification: An electronic database maintained by the Financial Accounting Standards Board (FASB) that contains all of the accounting standards that make up the generally accepted accounting principles (GAAP).

Accounting Standards Updates: Published changes to accounting standards that are the source of updates to the Accounting Standards Codification

arm’s-length transactions: Transactions between two independent parties.

assets: The resources owned by a business.

balance sheet: A list of the assets, liabilities, and stockholders’ equity as of a specific date, usually at the close of the last day of a month or a year.

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

business entity assumption: A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business.

business transaction: An economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations.

Certified Public Accountants (CPAs): Public accountant who has met a state’s education, experience, and examination requirements.

common stock: Certificates issued by a corporation to investors as proof of their ownership rights; an account representing the ownership rights of investors in a corporation; a class of stock issued by a corporation that bears no preference rights.

comparability: A secondary characteristic of financial information; comparability includes consistent reporting, that allows users to identify similarities and differences among reported items.

corporation: A business organized under state or federal statutes as a separate legal entity.

cost principle: A concept of accounting that states that an asset should be recorded and maintained in the accounting records at its initial transaction price.

data analytics: The science of analyzing large amounts of raw data, sometimes called “big data,” to discover patterns, identify anomalies, or gain other useful insights for decision making.

Dividends: Distributions of earnings to stockholders; an account representing the distribution of a corporation’s earnings to stockholders.

earnings: The amount by which revenues exceed expenses.

equity: The rights of the owners of a business.

ethics: Moral principles that guide the conduct of individuals.

expense recognition principle: A principle, sometimes called the matching principle, that requires expenses to be recorded in the same period as the related revenue; a concept of accounting in which expenses are matched with the revenue generated during a period by those expenses.

Expenses: Amounts used to generate revenue; assets used up or services consumed in the process of generating revenues.

faithful representation: A characteristic of financial reports that pertains to information accurately reflecting an entity’s economic activity or condition.

fees earned: Revenue from providing services

financial accounting: 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.

Financial Accounting Standards Board (FASB): The authoritative body that has the primary responsibility for developing accounting principles.

financial statements: Financial reports that summarize the effects of events on a business.

financing activities: Activities by which a company obtains funds to start and operate the company.

fiscal year: The annual accounting period adopted by a business.

generally accepted accounting principles (GAAP): Generally accepted guidelines for the preparation of financial statements.

general-purpose financial statements: A type of financial accounting report that is distributed to external users. The term “general purpose” refers to the wide range of decision-making needs that the reports are designed to serve.

going concern assumption: An assumption that requires that financial reports be prepared assuming that the entity will continue operating in the future.

historical cost principle: A concept of accounting that states that an asset should be recorded and maintained in the accounting records at its initial transaction price.

income statement: A summary of the revenue and expenses for a specific period of time, such as a month or a year.

interest revenue: Earnings received for interest.

International Accounting Standards Board (IASB): An organization that issues International Financial Reporting Standards for many countries outside the United States.

investing activities: Activities by which a company acquires long-term assets for use in the operating activities of the company.

liabilities: The rights of creditors that represent debts of the business.

limited liability company (LLC): 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.

managerial accounting: 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.

Manufacturing businesses: A type of business that changes basic inputs into products that are sold to individual customers.

measurement principle: A principle that requires that amounts be objective and verifiable.

monetary unit assumption: An accounting assumption that requires that financial reports be expressed in a single monetary unit, or currency.

natural business year: A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle.

net income: The amount by which revenues exceed expenses.

net loss: The amount by which expenses exceed revenues.

operating activities: Activities by which a company generates revenues from customers.

owner’s equity: The equity for a proprietorship, partnership, or a limited liability company.

partnership: An unincorporated business form consisting of two or more persons conducting business as co-owners for profit.

prepaid expenses: Assets created by making advanced payments for expense items, such as insurance premiums or supplies, that will be used in the business in the future.

private accounting: The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization.

profit: 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.

proprietorship: A business owned by one individual.

public accounting: The field of accounting where accountants and their staff provide services on a fee basis.

Public Company Accounting Oversight Board (PCAOB): A new oversight body for the accounting profession that was established by the Sarbanes-Oxley Act.

ratio of liabilities to stockholders’ equity: A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders’ equity; a solvency ratio that measures how much of the company is financed by debt and equity, computed as total liabilities divided by total stockholders’ equity.

relevant: A characteristic of financial reports that pertains to information having the potential to impact decision making.

rent revenue: Earnings from property that is leased to others for use.

report form: A form of balance sheet with the “Liabilities” and “Stockholders’ Equity” sections presented below the “Assets” section.

Retail businesses: A type of business that purchases products from other businesses and sells them to customers.

retained earnings: The stockholders’ equity created from business operations through revenue and expense transactions; an account representing the net income retained in a corporation.

retained earnings statement: A summary of the changes in the retained earnings in a corporation that have occurred during a specific period of time, such as a month or a year.

Revenue: Increases in owner’s equity as a result of providing services or selling goods to customers.

revenue recognition principle: A concept of accounting that states that revenues are recorded when earned, which is when the services have been performed or products have been delivered to customers.

sales: How revenue from the sale of merchandise is recorded; the total amount charged customers for merchandise sold, including cash sales and sales on account.

Sarbanes-Oxley Act (SOX): An act passed by Congress to restore public confidence and trust in the financial statements of companies.

Securities and Exchange Commission (SEC): An agency of the U.S. government that has authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public.

Service businesses: A business providing services rather than products to customers

Statement of cash flows: A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.

Statement of stockholders’ equity: A summary of the changes in the stockholders’ equity in a corporation that have occurred during a specific period of time, such as a month or a year.

stockholders’ equity: The ownership rights of stockholders in a corporation; the stockholders’ rights to the assets in a corporation.

timeliness: A secondary characteristic of financial information that requires distribution of financial reports in time to influence a user’s decision.

time period assumption: An accounting assumption that allows a company to report its economic activities on a regular basis for a specific period of time.

Understandability: A secondary characteristic of financial information that requires clear and concise financial reports that facilitate user interpretation and analysis.

verifiability: A secondary characteristic of financial information that allows users to agree on the meaning of reported items.