Accounting Vocabulary
Accounting
Financial information
 Planning
 Goal setting
 Needs assessment
 Recording
 Keep track of where money comes from and where it is going
Accounting (cont’d)
 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
Accounting System
A planned process for providing financial information that will
be useful to management
 Organized
 Computer-based (?)
 Consistent
 Transparent
Accounting Records
Organized summaries of a business’ financial activities
 Journals
 Ledgers
 Worksheets
 Reports
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
Service Business
A business that performs an activity for a fee
 Does not manufacture (produce) anything
 Examples include……..
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
Asset
Anything of value that is owned
 Cash
 Supplies
 Prepaid insurance
 Account receivables
 Other assets include: inventory, equipment, land,………
Liability
An amount owed by a business
 Accounts payable
 Other liabilities include: short term debt, long term debt,
………………………..
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
Owner’s Equity
Assets – Liabilties
 The value of a company once its obligations are subtracted
from what it has
 Capital is a part of Owner’s Equity
 Owner’s Equity represents what the company is worth
 What does negative Owner’s Equity mean?
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
The Accounting Equation
Assets = Liabilities + Owner’s Equity
What we own = What we owe + what we are
worth
End of Section 1
Transaction
A business activity that changes assets, liabilities or owner’s
equity
 Sale
 Purchase
 Investment
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
 Owner’s equity includes capital and drawing
Account Balance
The amount in an account.
 Represents the cash value of an account
 Account balances are not negative
Capital Account
Primary component of Owner’s 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
Revenue
An increase in Owner’s Equity resulting from the operation of
business
 Sales is the primary revenue account
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
Expense
A reduction in Owner’s Equity resulting from the operation of
a business
 Expenses represent the cost of doing business
 Rent
 Supplies
 Delivery
 Miscellaneous
 Utilities
Withdrawals
Assets taken out of the business for owner’s 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