Accounting Vocabulary

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Accounting Vocabulary
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Accounting

• Financial information
• Planning
• Goal setting
• Needs assessment
• Recording
• Keep track of where money comes from and where it
  is going

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Accounting (contd)

• Analyzing
• Where is our money coming from
• Where is our money going
• How do we compare with our competitors
• Did we improve when compared with last period
• Interpreting
• What does the information mean for the future
  health and viability of our company

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Accounting System

• A planned process for providing financial
  information that will be useful to management
• Organized
• Computer-based (?)
• Consistent
• Transparent

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Accounting Records

• Organized summaries of a business financial
  activities
• Journals
• Ledgers
• Worksheets
• Reports

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Financial Statements

• Financial reports that summarize the financial
  conditions and operations of a business
• Balance Sheet
• Income Statement
• Statement of Cash Flows
• Supplemental information
• Legal Requirements

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Service Business

• A business that performs an activity for a fee
• Does not manufacture (produce) anything
• Examples include..

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Proprietorship

• A business that is owned by one person
• Most common form of business in the US
• Income from a proprietorship represents personal
  income for the owner
• Partnerships are proprietorships owned by 2 or
  more people
• A proprietorship is not a separate legal entity

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Asset

• Anything of value that is owned
• Cash
• Supplies
• Prepaid insurance
• Account receivables
• Other assets include inventory, equipment,
  land,

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Liability

• An amount owed by a business
• Accounts payable
• Other liabilities include short term debt, long
  term debt, ..

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Equities

• Financial rights to the assets of a business
• Common and preferred stock
• Ownership in the company
• Proprietorships do not sell any form of stock

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Owners Equity

• Assets Liabilties
• The value of a company once its obligations are
  subtracted from what it has
• Capital is a part of Owners Equity
• Owners Equity represents what the company is
  worth
• What does negative Owners Equity mean?

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Business Ethics

• The use of the principles of right and wrong in
  making business decisions
• Scandals have led to new regulations regarding
  financial reporting
• Ethics impact all aspects of business
• Increased media scrutiny of corporate wrongdoing
  has raised consumer awareness

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The Accounting Equation

• Assets Liabilities Owners Equity
• What we own What we owe what we are
  worth
• End of Section 1

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Transaction

• A business activity that changes assets,
  liabilities or owners equity
• Sale
• Purchase
• Investment

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Account

• A 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. payable
• Owners equity includes capital and drawing

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Account Balance

• The amount in an account.
• Represents the cash value of an account
• Account balances are not negative

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Capital Account

• Primary component of Owners Equity
• Investment in the company
• Plus Net income
• Minus Net loss
• Minus Drawing
• Drawing is the amount an owner takes from the
  business for personal use
• End of section 2

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Revenue

• An increase in Owners Equity resulting from the
  operation of business
• Sales is the primary revenue account

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Sale on Account

• A sale for which cash will be received at a later
  date
• Money owed to a company from a sale on account is
  an account receivable
• Receivables represent what customers owe a
  company
• Receivables are assets

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Expense

• A reduction in Owners Equity resulting from the
  operation of a business
• Expenses represent the cost of doing business
• Rent
• Supplies
• Delivery
• Miscellaneous
• Utilities

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Withdrawals

• Assets taken out of the business for owners
  personal use
• Cash is the most common
• Problems can arise if the owner withdraws too
  many assets from a business
• Withdrawals are accounted for in the Drawing
  account