CHAPTER-1
Accounting; The information
system that identifies, records,
and communicates the
economic events of an
organization to interested
users .
Accounting information
system; The system of
collecting and processing
transaction data and
communicating financial
information to decision -
makers.
Assets Resources a business
owns.
* Auditing; The examination
of financial statements by a
certified public accountant in
order to express an opinion as
to the fairness of
presentation.
Basic accounting equation;
Assets = Liabilities + Owner's
equity.
Bookkeeping;A part of the
accounting process that
involves only the recording of
economic events.
Convergence ;The process of
reducing the differences
between U.S. GAAP and IFRS .
Corporation; A business
organized as a separate legal
entity under state corporation
law, having ownership divided
into transferable shares.
Drawings; Withdrawal of cash
or other assets from an
unincorporated business for
the personal use of the owner
( s ).
Economic entity assumption;
An assumption that requires
that the activities of the entity
be kept separate and distinct
from the activities of its owner
and all other economic
entities.
Ethics; The standards of
conduct by which actions are
judged as right or wrong ,
honest or dishonest , fair or
not fair .
Expanded accounting
equation; Assets = Liabilities +
Owner’s capital – Owner’s
drawings + Revenues –
Expenses.
Expenses;The cost of assets
consumed or services used in
the process of earning
revenue.
Fair value principle; An
accounting principle stating
that assets and liabilities
should be reported at fair
value ( the price received to
sell an asset or settle a liability
).
Faithful representation;
Numbers and descriptions
match what really existed or
happened – they are factual.
Financial accounting; The field
of accounting that provides
economic and financial
information for investors ,
creditors , and other external
users.
Financial Accounting
Standards Board ( FASB ); A
private organization that
establishes generally accepted
accounting principles in the
United States ( GAAP ).
* Forensic accounting; An
area of accounting that uses
accounting, auditing , and
investigative skills to conduct
investigations into theft and
fraud.
Generally accepted
accounting principles
( GAAP ); Common standards
that indicate how to report
economic events.
Historical cost principle; An
accounting principle that
states that companies should
record assets at their cost.
Income statement; A financial
statement that presents the
revenues and expenses and
resulting net income or net
loss of a company for a
specific period of time.
International Accounting
Standards Board ( IASB ); An
accounting standard - setting
body that issues standards
adopted by many countries
outside of the United States.
International Financial
Reporting Standards ( IFRS );
International accounting
standards set by the
International Accounting
Standards Board ( IASB ).
Investments by owner; The
assets an owner puts into the
business.
Liabilities; Creditor claims
against total assets.
* Management consulting;
An area of public accounting
ranging from development of
accounting and computer
systems to support services
for marketing projects and
merger and acquisition
activities.
Managerial accounting; The
field of accounting that
provides internal reports to
help users make decisions
about their companies.
Monetary unit assumption;
An assumption stating that
companies include in the
accounting records only
transaction data that can be
expressed in terms of money.
Net income; The amount by
which revenues exceed
expenses.
Net loss; The amount by
which expenses exceed
revenues.
Owner's equity; The
ownership claim on total
assets.
Owner's equity statement; A
financial statement that
summarizes the changes in
owner's equity for a specific
period of time.
Partnership; A business
owned by two or more
persons associated as
partners.
* Private ( or managerial )
accounting; An area of
accounting within a company
that involves such activities as
cost accounting , budgeting .
design and support of
accounting information
systems , and tax planning and
preparation.
Proprietorship; A business
owned by one person.
* Public accounting; An area
of accounting in which the
accountant offers expert
service to the general public.
Relevance;Financial
information that is capable of
making a difference in a
decision.
Revenues; The gross increase
in owner’s equity resulting
from business activities
entered into for the purpose
of earning income.
Statement of cash flows; A
financial statement that
summarizes information about
the cash inflows ( receipts )
and cash outflows
( payments ) for a specific
period of time.
Statement of financial
position; A financial statement
that reports the assets,
liabilities , and owner’s equity
at a specific date) .
* Taxation; An area of public
accounting involving tax
advice , tax planning ,
preparing tax returns , and
representing clients before
governmental agencies.
Transactions;The economic
events of a business that are
recorded by accountants.
CHAPTER-2
Account: A record of increases
and decreases in specific
asset, liability, or owner’s
equity items.
Chart of accounts: A list of
accounts and the account
numbers that identify their
location in the ledger.
Compound entry: A journal
entry that involves three or
more accounts.
Credit: The right side of an
account.
Debit: The left side of an
account.
Double – entry system: A
system that records in
appropriate accounts the dual
effect of each transaction.
General journal: The most
basic form of journal.
General ledger: A ledger that
contains all asset, liability ,
and owner’s equity accounts.
Journal: An accounting record
in which transactions are
initially recorded in
chronological order.
Journalizing:The entering of
transaction data in the
journal.
Ledger: The entire group of
accounts maintained by a
company.
Normal balance: An account
balance on the side where an
increase in the account is
recorded.
Posting: The procedure of
transferring journal entries to
the ledger accounts .
Simple entry: A journal entry
that involves only two
accounts.
T – account: The basic form of
an account , consisting of ( 1 )
a title , ( 2 ) a left or debit
side , and ( 3 ) a right or credit
side.
Three – column form of
account: A form with columns
for debit, credit, and balance
amounts in an account.
Trial balance: A list of
accounts and their balances at
a given time.
