Acct. 2301 ch 1
Terms
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Statement of cash flows
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Reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing.
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Financing activities
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Activities that obtain form investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows.
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Investing activities
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Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows.
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Operating activities
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Activities that create revenue or expense in the entity's major line of business; a section of the statement of cash flows. Operating activities affect the income statement.
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Current liability
- A debt due to be paid within one year or within the entity's operating cycle if the cycle is longer than a year.
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Current asset
- An asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year.
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Balance sheet
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List of an entity's assets, liabilities, and owners' equity as of a specific date. Also called the statement of financial position.
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Statement of retained earnings
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Summary of the changes in the retained earnings of a corporation during a specific period.
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Income statement
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A financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of operations.
- Dividends
- Distributions (usually cash) by a corporation to its stockholders.
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Net loss
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Excess of total expenses over total revenues.
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Net income
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Excess of total revenues over total expenses. Also called net earnings or net profit.
- Expense
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Decrease in retained earnings that result from operations; the cost of doing business; opposite of revenues.
- Revenue
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Increase in retained earnings from delivering goods or services to customers or clients.
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Retained earnings
- The amount of stockholders' equity that the corporation has earned through profitable operation and has not given back to stockholders.
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Common stock
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The most basic form of capital stock.
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Paid-in capital
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The amount of stockholders' equity that stockholders have contributed to the corporation. Also called contributed capital.
- Stockholders' equity
- The stockholders' ownership interest in the assets of a corporation.
- Long-term debt
- A liability that falls due beyond one year from the date of the financial statements.
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Note payable
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A liability evidenced by a written promise to make a future payment.
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Account payable
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A liability backed by the general reputation and credit standing of the debtor.
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Property, plant, and equipment
- Long-lived assets, such as land, buildings, and equipment, used in the operation of the business. Also called plant assets or fixed assets.
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Merchandise inventory
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The merchandise that a company sells to customers.
- Cash
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Money and any medium of exchange that a bank accepts at face value.
- Capital
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Another name for the owners' equity of a business.
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Owners' equity
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The claim of the owners of a business to the assets of the business. Also called capital, stockholders' equity, or net assets.
- Liability
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An economic obligation (a debt) payable to an individual or an organization outside the business.
- Asset
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An economic resource that is expected to be of benefit in the future.
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Accounting equation
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The most basic tool of accounting:
Assets = Liabilities + Owners' Equity
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Stable-monetary-unit concept
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The basis for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar's purchasing power is relatively stable.
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Goin-concern concept
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Holds that entity will remain in operation for the foreseeable future.
- Cost principle
- Principle that states that assets and services should be recorded at their actual cost.
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Reliability principle
- The accounting principle that ensures that accounting records and statements are based on the most reliable data available. Also called the objectivity principle.
- Entitiy
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An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit.
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Generally accepted accounting principles (GAAP)
- Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accounting is practical.
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Board of directors
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Group elected by the stockholders to set policy for a corporation and to appoint its officers.
- Stock
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Shares into which the owners' equity of a corporation is divided.
- Shareholder
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Another named for stockholder.
- Stockholder
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A person who owns stock in a corporation. Also called a shareholder.
- Corporation
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A business owned by stockholders. A corporation is a legal entity, an "artificial person" in the eyes of the law.
- Partnership
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An association of two or more persons who co-own a business for profit.
- Proprietorship
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A business with a single owner.
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Management accounting
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The branch of accounting that generates information for the internal decision makers of a business, such as top executives.
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Financial accounting
- The branch of accounting that provides information to people outside the firm.
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Financial statements
- Business documents that report financial information about a business entity to decision makers.
- Accoutning
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The information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers.