Account Balance

Difference between total debits and total credits (including the

beginning balance) for an account.

Accounting
comprehensive system for collecting, analyzing, and
communicating financial information

Accounting Cycle
for a given time period, the cycle of recording accounting data,
adjusting the accounts, preparing the financial statements, and
closing the temporary accounts; when one accounting cycle ends
a new one begins

Accounting Event
Economic occurrence that changes a company's assets, liabilities,
or equity

Accounting Period
Time span covered by the financial statements; normally one
year, but may be a quarter, month or some other time interval

Accrual
Accounting recognition of revenue or expense in a period before
cash is exchanged

Accrual Accounting
Accounting system which recognizes revenues when earned and
expenses when incurred regardless of when the related cash is
exchanged

Adverse Opinion
Opinion issued by a certified public accountant that means one
or more departures from GAAP in a company's financial
statements are so very material the auditors believe the financial
statements do not fairly represent the company's status

Adjusting Entry
Entry that updates account balances prior to preparing financial
statements; a bookkeeping tool. Adjusting entries never affect
the Cash account

Allocations

Recognizing expenses by systematically assigning the cost of an

asset to periods of use

American Institute of CPA's

National association that serves the education and professional
interests of member of the public accounting profession;
membership is voluntary

Annual Reports
Document companies publish to provide information, including
financial statements, to stockholders

Asset Exchange Transaction

A transaction that decreases one asset and increases another
asset; total asset remain unchanged.

Asset Source Transaction

A transaction that increases both an asset and a claim on assets ;
the three types of asset source transactions are aquisitions from
owners (equity), borrowing from creditors (liabilities), or
earnings from operations (revenues).

Asset Use Transaction

A transaction that decreases both an asset and a claim on assets;
3 types are distributions, liability payments, or expenses

Asset
Economic resource used to produce revenue which is expected to
provide future benefit to the business

Audits
the verifying of facts or procedures

Balance Sheet
A financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time.

Books of original entry

A journal in which a transaction is first recorded.

Book Value
the asset's cost minus accumulated depreciation; carrying
amount; net amount of a plant asset

Claims
Owners' and creditors' interests in a business's assets

Claims Exchange Transaction

A transaction that decreases one claim and increases another
claim; total claims remain unchanged. for example, accruing
interest expense is a claims exchange transaction; liabilities
increase, and the expense recognition decreases retained
earnings.

Code of Professional Conduct

Rules established by the American Institute of Certified Public
Accountants to govern the ethical performance of professional
services by CPAs

Closing Entries
Journal entries used to prepare temporary accounts for a new
fiscal period

Closing Process
The transfer process of converting temporary account balances
to zero by transferring the revenue and expense account balances
to income summary, transferring the income summary account
balance to the retained earnings account, and transferring the
dividends account to the retained earnings account.

Common Stock
Represents ownership in a publicly held company which entitles
owners to dividends (if declared by the company's Board of
Directors), voting rights on matters affecting the company, and
in the elections of Boards members.

Conservatism
A principle of guides accountants in uncertain circumstances to
select the alternative that produces the lowest amount of net
income

Contra Asset Account

An account offset against an asset account on the balance sheet.

Cost
The amount paid to acquire a resource (asset) or to pay for a
resource that has been consumed.

Credit
Entry on the right side of an account; increases liability and
equity accounts or decreases asset accounts

Debt to Asset Ratio

Financial measure of a company's level of risk, calculated as total
debt divided by total assets

Deferrals
accounting recognition of revenue or expense in a period after
cash is exchanged

Disclaimer of Audit Opinion

Report on financial statements issued when the auditor is unable
to obtain enough information to determine if the statements
conform to GAAP; is neither positive nor negative

Double Entry Accounting

Accounting system in which each transaction affects at least two
accounts and has at least one debit and one credit.

Equity
the ownership interest of shareholders in a corporation

Expenses
economic sacrifice that is incurred in the process of generating
revenue

Financial Accounting
Accounting information and analyses prepared for people
outside the organization.

Financing Activities
activities related to cash inflows and outflows from transactions
with owners and creditors who supply funds to operate the firm
and return to the owners; dividends paid, borrowing money, etc.

Generally Accepted Accounting Principles

A set of rules used by accountants to prepare financial reports

General Ledger

a ledger that contains all accounts needed to prepare financial

statements

General Journal
All-purpose journal for recording the debits and credits of
transactions and events.

Historical Cost
This is the idea that we record the value of assets at their
purchase (or original cost).

Income Statement
a financial document that shows how much money (revenues)
came in and how much money (expenses) was paid out

Liabilities
Organization's debts and other financial obligations.

Liquidity
ability to converted an asset into cash quickly

Managerial Accounting
the internal use of accounting statements by managers in
planning and directing the organization's activities

Matching Concept
A concept of accounting in which expenses are matched with the
revenue generated during a period by those expenses.

Net Income
the difference between total revenue and total expenses when
total revenue is greater

Net Loss
The difference between total revenue and total expenses when
total expenses are greater

Operating Activities
Cash flow activities include the cash effects of transactions that
create revenues and expenses, and thus enter into the
determination of net income.

Period Cost

Costs that are not attached to the inventory. Are counted as

expenses in the period incurred.

Permanent Accounts
Accounts that are not set to zero during the closing process.
Assets, liabilities, and capital accounts are permanent accounts.

Price Earning Ratio

The price of one share of stock divided by the corporation's
earnings per stock outstanding over the period

Realization
collecting money

Recognition
reporting an accounting event in the financial statements

Retained Earnings
earnings retained by a firm for its use rather than paid out as
dividends

Return on Assets Ratio

Net income / Average total assets

Return on Equity
Net Income/Equity

Revenue
income earned from the sale of goods and services

Securities and Exchange Commission

Government agency having primary responsibility for enforcing
the Federal securities laws and regulating the securities industry.
It protected investors, listened to complaints, issued licenses and
penalized fraud.

Salvage Value
Estimate of amount to be recovered at the end of an asset's useful
life; also called residual value or scrap value.

Statement of Change in Stockholder's Equity

statement that summarizes the transactions that affected the
owners equity during the accounting period

Statement of Cash Flows

Financial statement that reports cash receipts and disbursements
related to a firm's three major activities: operations, investments,
and financing.

T-Account
A tool used to learn the double-entry accounting system. It has
the appearance of the letter T. The left side is for debit entries
and the right side is for credit entries. The account title appears
at the top of the T.

Temporary Accounts
Revenue, expense, and dividend accounts whose balances a
company transfers to Retained Earnings at the end of an
accounting period

Unearned Revenue
Liability created when customers pay in advance for products or
services; earned when the products or services are later
delivered.