- 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
- asset
- 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
- corporation
- 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
- dividend
- 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
- equity
- residual interest in the assets of an entity that remains after deducting its liabilities
- expense
- cost associated with providing goods or services
- gain
- 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
- inventory
- 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
- liability
- 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
- liquidity
- 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
- loss
- 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
- partnership
- 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
- revenue
- 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
- stakeholder
- 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