Accounting Vocabulary

AccountingFinancial informationPlanning

Goal settingNeeds assessment

RecordingKeep track of where money comes from and

where it is going

Accounting (cont’d)Analyzing

Where is our money coming fromWhere is our money goingHow do we compare with our competitorsDid we improve when compared with last

periodInterpreting

What does the information mean for the future health and viability of our company

Accounting SystemA planned process for providing financial

information that will be useful to management

OrganizedComputer-based (?)ConsistentTransparent

Accounting RecordsOrganized summaries of a business’ financial

activitiesJournalsLedgersWorksheetsReports

Financial StatementsFinancial reports that summarize the

financial conditions and operations of a business

Balance SheetIncome StatementStatement of Cash FlowsSupplemental informationLegal Requirements

Service BusinessA business that performs an activity for a feeDoes not manufacture (produce) anythingExamples include……..

ProprietorshipA business that is owned by one personMost common form of business in the USIncome from a proprietorship represents

personal income for the ownerPartnerships are proprietorships owned by

2 or more peopleA proprietorship is not a separate legal

entity

AssetAnything of value that is ownedCashSuppliesPrepaid insuranceAccount receivablesOther assets include: inventory, equipment,

land,………

LiabilityAn amount owed by a businessAccounts payableOther liabilities include: short term debt,

long term debt, ………………………..

EquitiesFinancial rights to the assets of a businessCommon and preferred stockOwnership in the companyProprietorships do not sell any form of

stock

Owner’s EquityAssets – LiabiltiesThe value of a company once its obligations

are subtracted from what it hasCapital is a part of Owner’s EquityOwner’s Equity represents what the

company is worthWhat does negative Owner’s Equity mean?

Business EthicsThe use of the principles of right and wrong

in making business decisionsScandals have led to new regulations

regarding financial reportingEthics impact all aspects of businessIncreased media scrutiny of corporate

wrongdoing has raised consumer awareness

The Accounting EquationAssets = Liabilities + Owner’s

Equity

What we own = What we owe + what we are worth

End of Section 1

TransactionA business activity that changes assets,

liabilities or owner’s equitySalePurchase Investment

AccountA record summarizing all the information

pertaining to a single item in the accounting equation

Assets include cash, supplies, prepaid insurance, accts. receivable

Liabilities include acct. payableOwner’s equity includes capital and

drawing

Account BalanceThe amount in an account. Represents the cash value of an accountAccount balances are not negative

Capital AccountPrimary component of Owner’s EquityInvestment in the companyPlus Net incomeMinus Net lossMinus Drawing

Drawing is the amount an owner takes from the business for personal use

End of section 2

RevenueAn increase in Owner’s Equity resulting from

the operation of businessSales is the primary revenue account

Sale on AccountA sale for which cash will be received at a

later dateMoney owed to a company from a sale on

account is an account receivableReceivables represent what customers owe

a companyReceivables are assets

ExpenseA reduction in Owner’s Equity resulting from

the operation of a businessExpenses represent the cost of doing

businessRentSuppliesDeliveryMiscellaneousUtilities

WithdrawalsAssets taken out of the business for owner’s

personal useCash is the most commonProblems can arise if the owner withdraws

too many assets from a businessWithdrawals are accounted for in the

Drawing account