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Business
organization in which basic resources(inputs) such as materials and labor are assembled and processed to proved goods or services (outputs) to customers
Profit
is the difference between the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services
service businesses p
provide services rather than products
merchandising buinesses
sell products they purchase from other businesses
manufacturing businesses
change basic inputs into products that are sold
proprietorship
owned by one individual ease and low cost of organizing
partnership
owned by two or more individuals
corporation
organized under state or federal statutes as a separate legal entity -divided into shares of stock
limited liability company LLC
combines attributes of partnership and corporation -owners liability for the debts of the company is limited to their investment
low-cost strategy
company designs and produces products or services at a lower cost than its competitors
premium-price strategy
company tries to design and produce products or services that serve unique market needs
business stakeholder
a person or entity with an interest in the economic performance and well-being of a company
capital market stakeholder
provide the financing for a company to begin and continue its operations
product or service market stakeholder
purchase the companys products or services or sell their products or services to the company
government stakeholders
federal, state, county, and city governments collect taxes from companies
internal stakeholders
managers and employees depend upon the continued success of the company for keeping their jobs
financing activities
to obtain the necessary funds to organize and operate the company
investing activities
to obtain assets such as buildings and equipment to begin and operate the company
operating activities
to earn revenues and profits
account payable
a company borrows from a vendor or supplier, the liability
liability
a legal obligation to repay the amount borrowed according to the terms of the borrowing agreement
bonds payable
bond obligations
interest payable
any interest that is due is reported as
note payable
requires payment of the amount borrowed plus interest
common stock
the basic type of stock issued to owners
capital stock
refers to all the types of stock a corporation may issue
stockholders
investors who purchase the stock
assets
the resources owned by a corporation (company)
dividends
distributions of earnings to stockholders
tangible assets
machinery buildings computers assets that have physical characteristics
intangible assets
ex. patent rights
prepaid expenses
prepaying for insurance and rent -assets until they are consumed
accounts receivable
rights to payments from customers who purchase merchandise or services on credit are reported as
revenue
increase in assets from selling products or services
sales
revenues received from selling products
fees earned
revenues received from providing services
expenses
costs used to earn revenue
selling expenses
include costs directly related to the selling of a product or service
administrative expenses
include costs such as salaries and other costs of the corporate office
net income
results when revenues exceeds expenses
net loss
results when expenses exceed revenues
accounting
defined as an information system that provides reports to stakeholders about the economic activities and condition of a business
financial accounting
the branch of accounting that is associated with preparing reports for users external to the business
managerial accounting
the branch of accounting used to guide management in making decisions for the company
income statement
reports the change in financial condition due to the operations of the company
retained earnings statement
reports changes in financial condition due to changes in retained earnings for a period
retained earnings
the portion of a corporations net income that is retained in the business
stockholders (owners) equity
the rights of stockholders
accounting equation
assets = liabilities + stockholders equity
balance sheet
prepared using the accounting equation
statement of cash flows
reports the change in financial condition due to the changes in cash during a period
generally accepted accounting principles GAAP
accounting rules
financial accounting standards board FASB
has the primary responsibility for developing accounting principles
securities and exchange commission SEC
an agency that has authority over the accounting and financial disclosures for corporations whose stock is traded and sold to eh public
international accounting standards board IASB
many countries accept these accounting principles
business entity concept
limits the economic data recorded in an accounting system to data related to the activities of that company
cost concept
initially records assets in the accounting records at their cost or purchase price
going concern concept
assumes that a company will continue in business indefinitely
matching concept
reports the revenues earned by a company for a period with the expenses incurred in generating the revenues
objectivity concept
requires that entries in the accounting records and the data reported on financial statements be based on verifiable or objective evidence
unit of measure concept
requires that all economic data be recorded in dollars
adequate disclosure concept
requires that the financial statements including related notes contain all relevant data a stakeholder needs to understand the financial condition and performance of the company
accounting period concept
requires that accounting data be recorded and summarized in financial statements for periods of time
financial accounting system
rules, framework, and controls
transaction
an economic event that under GAAP affects the financial statements
liquidity
refers to the ability to convert and asset to cash
accrual basis of accounting
records revenue as it is earned and matches expenses against the revenue they generate
accounts
transactions that increase or decrease a financial statement element are recorded
repaid (deferred) expenses
assets that expires with the passage of time (insuance)
accounts payable
liabilities that are incurred in the normal operations
accounts receivable
such amounts that are to be collected in the future and that arise from the normal operations
adjustment process
accrual accounting requires the updating of the accounting records prior to preparing financial statements
deferrals
which are created by recording a transaction in a way that delays or defers the recognition of an expense or revenue
accruals
which are created when a revenue or expense has been earned or incurred bu has not been recorded
prepaid (deferred) expenses
initially recorded as assets but become expenses over time
unearned (deferred) revenues
initially recorded as liabilities but become revenues over time
accrued expenses (liabilities)
expenses that have been incurred but are not recorded in the accounts
accrued revenues (assets)
revenues that have been earned but are not recorded in the accounts
depreciation
reduction in the ability of a fixed asset to provide service
accumulated depreciation
offsetting or contra asset account
book value
carrying value
current assets
cash and other assets that are expected to be converted to cash or sold or used up within one year or less
notes receivable
written claims against debtors who promise to pay the amount of the note plus interest
fixed assets
physical assets of a long-term nature
intangible assets
represent rights of a long term nature
current liabilities
are due within a short time and are to be paid out of current assets
long term liabilities
not due for a long time usually more than a year
cash basis of accounting
companies that record transactions only when cash is received or paid
accounting cycle
the process that begins with analyzing transactions and ends with preparing financial statements

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