Skip to ContentGo to accessibility pageKeyboard shortcuts menu
OpenStax Logo

accounting equation
assets = liabilities + owner’s equity
accounts payable
value of goods or services purchased that will be paid for at a later date
accounts receivable
outstanding customer debt on a credit sale, typically receivable within a short time period
accrual basis accounting
accounting system in which revenue is recorded or recognized when earned yet not necessarily received, and in which expenses are recorded when legally incurred and not necessarily when paid
tangible or intangible resource owned or controlled by a company, individual, or other entity with the intent that it will provide economic value
balance sheet
financial statement that lists what the organization owns (assets), owes (liabilities), and is worth (equity) on a specific date
cash basis accounting
method of accounting in which transactions are not recorded in the financial statements until there is an exchange of cash
common stock
corporation’s primary class of stock issued, with each share representing a partial claim to ownership or a share of the company’s business
comprehensive income
change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources
legal business structure involving one or more individuals (owners) who are legally distinct (separate) from the business
current asset
asset that will be used or consumed in one year or less
current liability
debt or obligation due within one year or, in rare cases, a company’s standard operating cycle, whichever is greater
current ratio
current assets divided by current liabilities; used to determine a company’s liquidity (ability to meet short-term obligations)
distribution to owner
periodic “reward” distributed to owner of cash or other assets
portion of the net worth (equity) that is returned to owners of a corporation as a reward for their investment
elements of the financial statements
categories or groupings used to record transactions and prepare financial statements
residual interest in the assets of an entity that remains after deducting its liabilities
cost associated with providing goods or services
increase in organizational value from activities that are “incidental or peripheral” to the primary purpose of the business
income statement
financial statement that measures the organization’s financial performance for a given period of time
initial public offering (IPO)
when a company issues shares of its stock to the public for the first time
intangible asset
asset with financial value but no physical presence; examples include copyrights, patents, goodwill, and trademarks
value of products to be sold or items to be converted into sellable products
investment by owner
exchange of cash or other assets in exchange for an ownership interest in the organization
probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events
ability to convert assets into cash in order to meet primarily short-term cash needs or emergencies
long-term asset
asset used ongoing in the normal course of business for more than one year that is not intended to be resold
long-term liability
debt settled outside one year or one operating cycle, whichever is longer
decrease in organizational value from activities that are “incidental or peripheral” to the primary purpose of the business
net income
when revenues and gains are greater than expenses and losses
net loss
when expenses and losses are greater than revenues and gains
noncurrent asset
asset that will be used or consumed over more than one year
noncurrent liability
liability that is expected to be settled in more than one year
notes payable
value of amounts borrowed that will be paid in the future with interest
notes receivable
value of amounts loaned that will be received in the future with interest
legal business structure consisting of an association of two or more people who contribute money, property, or services to operate as co-owners of a business
publicly traded company
company whose stock is traded (bought and sold) on an organized stock exchange
retained earnings
cumulative, undistributed net income or net loss for the business since its inception
inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations
Securities and Exchange Commission (SEC)
federal regulatory agency that regulates corporations with shares listed and traded on security exchanges through required periodic filings
short-term asset
asset typically used up, sold, or converted to cash in one year or less
short-term liability
liability typically expected to be paid within one year or less
sole proprietorship
legal business structure consisting of a single individual
someone affected by decisions made by a company; may include an investor, creditor, employee, manager, regulator, customer, supplier, and layperson
statement of cash flows
financial statement listing the cash inflows and cash outflows for the business for a period of time
statement of owner’s equity
financial statement showing how the equity of the organization changed for a period of time
tangible asset
asset that has physical substance
working capital
current assets less current liabilities; sometimes used as a measure of liquidity
Order a print copy

As an Amazon Associate we earn from qualifying purchases.


This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at
Citation information

© Dec 13, 2023 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.