Account Record of increases and decreases in a specific asset liability equity revenue or expense element Accounting the language of business an information system that measures business activities processes data into reports and communicates results to decision makers Accounts Payable money owned by a company to its creditors Accrual an expense or revenue that occurs before the business pays or receives cash Accrued Expense an expense incurred but not yet paid in cash Accrued Liability A liability for an expense that has not yet been paid by the company Accrued Revenue a revenue that has been earned but not yet received in cash Accumulated Depreciation cumulative sum of all depreciation expense from the date of acquiring a plant asset Assets economic resources that are expected to produce a benefit in the future Balance Sheet statement of financial position reports assets liabilities and stockholder s equity on a specific date Board of Directors sets policy and appoints officers under a corporation Cash basis Accounting accounting that records only transactions in which cash is received or paid Continuity going concern Assumption the assumption that the entity will continue to operate long enough to sell its inventories and convert any receivables to cash to use other existing assets for their intended purposes and settle its obligations in the normal course of business Corporation formed under state law business owned by stockholders shareholders who own stock representing shares of ownership in the corporation Current Assets are assets that are expected to be converted to cash sold or consumed during the next 12 months or within business operating cycle Current Liabilities debts generally payable within one year Current Ratio measures a company s ability to pay current liabilities with current assets Deferral adjustment for which the business paid or received cash in advance Ex Prepaid rent prepaid insurance supplies Depreciation allocation of cost of a plant asset to expense over useful life Dividends they decrease earnings because they are distributions to stockholders of assets Ethics shaped by our cultural socio economic and religious backgrounds Entity an organization that stands apart as a separate unit Expenses resource outflows that decrease retained earnings due to operations Financial Accounting provides info for decision makes outside the entity such as investors creditors government agencies and the public FASB Financial Accounting Standards Board formulates GAAP Fair Value amount a business could sell the asset for or the amount that the business could pay to settle the liability Financial Statements business documents that companies use to report the results of their activities to various user groups which can include managers investors creditors and regulatory agencies GAAP Generally Accepted Accounting Principles Going Concern Assumption quitting concern or going out of business assumption Historical Cost Principle states the assets should be recorded at their actual cost measured on the date of purchase as the amount of cash paid plus the dollar value of all noncash consideration also given in exchange IASB International Accounting Standards Board sets global financial reporting standards IFRS Income Statement The financial statement that reports the revenues and expenses for a period of time Journal chronological accounting record of an entity s transactions Ledger book of accounts and their balances Liabilities outsider claims debts payable to outsiders called creditors Limited Liability Company one in which the business not the owner is liable for the company s debts Limited Liability Partnership one in which a wayward partner cannot create a large liability for the other partners each partner liable for the debts only up to the extent of their investment plus their proportionate share of liabilities Long Term Asset asset that is not a current asset Long Term Liability liability that is not a current liability Management Accounting provides info for managers of a company includes budgets forecasts and projections used to make strategic decisions Net Income profit left over after subtracting expenses and losses from revenues and gains Operating Activities result in net income loss and either increase or decrease cash Operating Cycle time span in which cash is paid for goods ad services that are sold to customers who pay the business in cash Owner s Equity represents the insider claims of a business Paid in Capital the amount the stockholders have invested in the corporation Partnership has 2 or more parties as co owners each owner is a partner Prepaid Expense typically expire Ex prepaid rent insurance and supplies Posting copying amounts from the journal to the ledger Proprietorship distinct entity single owner tend to be retail stores or solo providers i e physicians attorneys accountants Retained Earnings amount earned by income producing activities and kept for use in the business Revenues inflows of resources that increase retained earnings by delivering goods or services to customers Statement of Cash Flows reports cash receipts cash payments Stockholder s Equity capital received from investors in exchange for stock Transaction Any event that has a financial impact on the business and can be measured reliably Trial Balance list of all ledger accounts with their balances Unearned Revenue liability created when a business collects cash from customers in advance of earning the revenue Flow of Accounting Info People make Decisions Business Transactions occur Companies report their results Under the accrual basis of accounting revenues are reported in the accounting period when the service has been delivered Dividends NEVER impact Net Income On a Balance sheet Cash is first When total revenue exceeds total expenses the result is net income net earnings or net profit When expenses exceed revenues the result is a net loss Net Income or net loss is bottom line on income statement When making accounts Debit on the left Cash on the right Major purpose of preparing closing entries is to update the retained earnings account Journal entry to record a payment on account will debit accounts payable and credit cash If the credit to record the supplies on account is not posted Liabilities will be understated Failed to make adjusting entry to record depreciation effect of error is assets net income stockholder s equity overstated Account types with credit balance