89 Cards in this Set
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Business
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organization in which basic resources(inputs) such as materials and labor are assembled and processed to proved goods or services (outputs) to customers
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Profit
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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
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service businesses p
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provide services rather than products
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merchandising buinesses
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sell products they purchase from other businesses
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manufacturing businesses
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change basic inputs into products that are sold
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proprietorship
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owned by one individual ease and low cost of organizing
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partnership
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owned by two or more individuals
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corporation
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organized under state or federal statutes as a separate legal entity -divided into shares of stock
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limited liability company LLC
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combines attributes of partnership and corporation -owners liability for the debts of the company is limited to their investment
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low-cost strategy
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company designs and produces products or services at a lower cost than its competitors
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premium-price strategy
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company tries to design and produce products or services that serve unique market needs
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business stakeholder
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a person or entity with an interest in the economic performance and well-being of a company
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capital market stakeholder
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provide the financing for a company to begin and continue its operations
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product or service market stakeholder
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purchase the companys products or services or sell their products or services to the company
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government stakeholders
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federal, state, county, and city governments collect taxes from companies
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internal stakeholders
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managers and employees depend upon the continued success of the company for keeping their jobs
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financing activities
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to obtain the necessary funds to organize and operate the company
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investing activities
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to obtain assets such as buildings and equipment to begin and operate the company
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operating activities
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to earn revenues and profits
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account payable
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a company borrows from a vendor or supplier, the liability
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liability
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a legal obligation to repay the amount borrowed according to the terms of the borrowing agreement
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bonds payable
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bond obligations
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interest payable
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any interest that is due is reported as
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note payable
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requires payment of the amount borrowed plus interest
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common stock
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the basic type of stock issued to owners
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capital stock
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refers to all the types of stock a corporation may issue
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stockholders
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investors who purchase the stock
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assets
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the resources owned by a corporation (company)
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dividends
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distributions of earnings to stockholders
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tangible assets
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machinery buildings computers assets that have physical characteristics
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intangible assets
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ex. patent rights
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prepaid expenses
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prepaying for insurance and rent -assets until they are consumed
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accounts receivable
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rights to payments from customers who purchase merchandise or services on credit are reported as
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revenue
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increase in assets from selling products or services
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sales
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revenues received from selling products
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fees earned
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revenues received from providing services
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expenses
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costs used to earn revenue
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selling expenses
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include costs directly related to the selling of a product or service
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administrative expenses
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include costs such as salaries and other costs of the corporate office
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net income
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results when revenues exceeds expenses
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net loss
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results when expenses exceed revenues
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accounting
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defined as an information system that provides reports to stakeholders about the economic activities and condition of a business
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financial accounting
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the branch of accounting that is associated with preparing reports for users external to the business
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managerial accounting
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the branch of accounting used to guide management in making decisions for the company
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income statement
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reports the change in financial condition due to the operations of the company
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retained earnings statement
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reports changes in financial condition due to changes in retained earnings for a period
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retained earnings
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the portion of a corporations net income that is retained in the business
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stockholders (owners) equity
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the rights of stockholders
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accounting equation
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assets = liabilities + stockholders equity
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balance sheet
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prepared using the accounting equation
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statement of cash flows
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reports the change in financial condition due to the changes in cash during a period
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generally accepted accounting principles GAAP
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accounting rules
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financial accounting standards board FASB
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has the primary responsibility for developing accounting principles
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securities and exchange commission SEC
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an agency that has authority over the accounting and financial disclosures for corporations whose stock is traded and sold to eh public
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international accounting standards board IASB
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many countries accept these accounting principles
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business entity concept
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limits the economic data recorded in an accounting system to data related to the activities of that company
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cost concept
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initially records assets in the accounting records at their cost or purchase price
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going concern concept
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assumes that a company will continue in business indefinitely
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matching concept
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reports the revenues earned by a company for a period with the expenses incurred in generating the revenues
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objectivity concept
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requires that entries in the accounting records and the data reported on financial statements be based on verifiable or objective evidence
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unit of measure concept
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requires that all economic data be recorded in dollars
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adequate disclosure concept
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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
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accounting period concept
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requires that accounting data be recorded and summarized in financial statements for periods of time
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financial accounting system
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rules, framework, and controls
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transaction
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an economic event that under GAAP affects the financial statements
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liquidity
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refers to the ability to convert and asset to cash
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accrual basis of accounting
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records revenue as it is earned and matches expenses against the revenue they generate
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accounts
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transactions that increase or decrease a financial statement element are recorded
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repaid (deferred) expenses
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assets that expires with the passage of time (insuance)
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accounts payable
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liabilities that are incurred in the normal operations
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accounts receivable
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such amounts that are to be collected in the future and that arise from the normal operations
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adjustment process
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accrual accounting requires the updating of the accounting records prior to preparing financial statements
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deferrals
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which are created by recording a transaction in a way that delays or defers the recognition of an expense or revenue
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accruals
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which are created when a revenue or expense has been earned or incurred bu has not been recorded
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prepaid (deferred) expenses
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initially recorded as assets but become expenses over time
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unearned (deferred) revenues
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initially recorded as liabilities but become revenues over time
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accrued expenses (liabilities)
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expenses that have been incurred but are not recorded in the accounts
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accrued revenues (assets)
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revenues that have been earned but are not recorded in the accounts
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depreciation
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reduction in the ability of a fixed asset to provide service
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accumulated depreciation
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offsetting or contra asset account
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book value
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carrying value
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current assets
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cash and other assets that are expected to be converted to cash or sold or used up within one year or less
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notes receivable
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written claims against debtors who promise to pay the amount of the note plus interest
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fixed assets
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physical assets of a long-term nature
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intangible assets
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represent rights of a long term nature
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current liabilities
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are due within a short time and are to be paid out of current assets
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long term liabilities
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not due for a long time usually more than a year
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cash basis of accounting
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companies that record transactions only when cash is received or paid
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accounting cycle
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the process that begins with analyzing transactions and ends with preparing financial statements
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ACCT 102: TEST 1