Chapter 1

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  1. Accounting
    The information system that identifies, records, and communicates the economics events of an organization to interested users. (p. 6)
  2. Annual Report
    A report prepared by corporate management that presents financial information including financial statements, notes, a management discussion analysis section, and an independant auditor's report. (p. 21)
  3. Assets
    Resources owned by a business. (p. 10)
  4. Auditor's Report
    A report prepared by an independant outside auditor stating the auditor's opinion to the fairness of the presentation of the financial position and results of operations and their conformance with generally acceptable accounting principles. (p. 22)
  5. Balance Sheet
    A financial statement that reports the assets and claims to those assets at a specific point in time. (p. 14)
  6. Basic Accounting Equation
    Assets = Liabities + Owner's (Stockholders') Equity (p. 14)
  7. Certified Public Accountant (CPA)
    An individual who has met certain criteria and is thus allowed to perform audits of corporations. (p. 23)
  8. Common Stock
    Term used to describe the total amount paid by stockholders for the shares they purchase. (p. 10)
  9. Comparative Statements
    A presentation of the financial statements of a company for more than one year. (p. 19)
  10. Corporation
    A business organized as a seperate legal entity having ownership divided into transferrable shares of stock. (p. 4)
  11. Dividends
    Payments of cash from a corporation to its stockholders. (p. 10)
  12. Expenses
    The cost of assets consumed or services used in the process of generating revenue. (p. 11)
  13. Income Statement
    A 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. 12)
  14. Liabilities
    The debts and obligations of a business. Liabilities represents the amounts owed to creditors. (p. 10)
  15. Managment Discussion and Analysis (MD&A)
    A section of the annual report that presents management's view on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operation. (p. 22)
  16. Net Income
    The amount by which revenues exceed expenses. (p. 11)
  17. Net Loss
    The amount by which expenses exceed revenues. (p. 11)
  18. Notes to the Financial Statements
    Notes that clarify information presented in the financial statements, as well as expand upon it where additional detail is needed. (p. 22.)
  19. Partnership
    A business owned by two or persons associated as partners. (p. 4)
  20. Retained Earnings
    The amount of net income retained in the corporation. (p. 13)
  21. Retained Earnings Statement
    A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific period of time. (p. 13)
  22. Revenue
    The increase in assets that result from the sale of a product or service in the normal course of business. (p. 11)
  23. Sarbanes-Oxley Act (SOX)
    Regulations passed by congress in 2002 to try to reduce unethical comporate behavior. (p. 9)
  24. Sole Proprietorship
    A business owned by one person. (p. 4)
  25. Statement of Cash Flows
    A financial statement that provides financial informationabout the cash receipts and cash payments of a business for a specific period of time. (p. 15)
  26. Stockholders' Equity
    The owners' claim on total assets. (p. 14)
  27. Name Four Financial Statements
    • Income Statement
    • Statement of retained earnings
    • Balance sheet
    • statements of cash flows
  28. Return on assets (ROA)
    • return on investment
    • Return= Net income /average total assets
  29. Basic Principles
    • Transaction analysis
    • Financial Statements
  30. Accounting is often called the ______
    language of business
  31. Explain why ethics are crucial to accounting
    • Goal of accounting is to provide useful info for decision making
    • For information to be useful it must be trusted
  32. Name three major activities of organizations
    • Financing
    • investing
    • operating
  33. Equity
    owner's claim on assets
  34. Return
    refers to income
  35. Risk
    • is incertainty about the return we hope to make
    • all investments involve risks
    • the lower the risk of an investment, the lower is its expected return. vice versa
  36. Transaction
    • is an exchange of econ. consideration between two parties
    • Ex. exchanges of products, service, money and rights to collect money
  37. GAAP
    Generally Accepted Accounting Principles
Card Set
Chapter 1
Accounting vocab
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