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| The communication of financial information about a business or other type of organization to external audiences in order to help them assess its financial health and prospects. |
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| The charge for using money over time, often associated with long-term loans; even if not specifically mentioned in the debt agreement, U.S. GAAP requires it to be computed and reported based on a reasonable rate. |
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| The communication of financial information within an organization so internal decisions can be made in an appropriate manner. |
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| Legal process by which owners of an organization apply to a state government to have it identified as an entity legally separate from its owners (a corporation); corporations are the legal form of most businesses of any size in the United States. |
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| An organization that has been formally recognized by the state government as a legal entity so that it can sell ownership shares to raise money for capital expenditures and operations; business is legally separate from its owners through incorporation. |
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| A business created, owned, and operated by a single individual; business is not legally separate from its owner through incorporation. |
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| A business created, owned, and operated by more than one individual; business is not legally separate from its owners through incorporation. |
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| Stockholders or Shareholders |
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| Individuals or organizations that hold the ownership shares of stock of a corporation; same as shareholders. |
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Definition
| Ownership (equity) shares of stock in a corporation that are issued to raise financing for capital expenditures and operations. |
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| Organized stock market that efficiently matches buyers and sellers of capital stock at a mutually agreed-upon price allowing ownership in companies to change hands easily. |
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| A group that oversees the management of a corporation; the members are voted to this position by stockholders; it hires the management to run the company on a daily basis and then meets periodically to review operating and financing results and also approve policy and strategy. |
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| NASDAQ (National Association of Securities Dealers Automated Quotations) |
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Definition
| An electronic market that allows for the trading of equity securities in approximately 4,000 companies, providing instantaneous price quotations to efficiently match buyers and sellers allowing ownership in companies to change hands. |
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| Long-Term Capital Gain or Loss |
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Definition
| Occurs when certain investments are held for more than twelve months before being sold; a favorable tax treatment can result when gains are earned. |
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| Distributions made by a corporation to its shareholders as a reward when income has been earned; shareholders often receive favorable tax treatment when cash dividends are collected. |
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| A current asset bought or manufactured for the purpose of selling in order to generate revenue. |
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| Representational Faithfulness |
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Definition
| Agreement between a measure or description and the situation it purports to represent; in simpler terms, information that conveys an appropriate picture of underlying events or amounts. |
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Definition
| Financial information that contains no material misstatements in accordance with U.S. generally accepted accounting principles (U.S. GAAP). |
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| Quantitative reports and related verbal disclosures describing and detailing the operations, financial position, and cash flows of an organization. |
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| The magnitude of an omission or misstatement of accounting information that makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by that omission or misstatement. |
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Definition
| An error or fraud that causes financial information to differ from U.S. generally accepted accounting principles. |
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| An unintentional misstatement of financial information. |
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| An intentional misstatement of financial information; it can result from misappropriation of assets (theft) or fraudulent financial reporting. |
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| U.S. generally accepted accounting principles (U.S. GAAP) |
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Definition
| A recognized set of accounting rules used and followed in the United States of America. |
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Definition
| Future economic benefits owned or controlled by an organization. |
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Term
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Definition
| Future sacrifices of economic benefits arising from present obligations; the debts of an organization. |
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Term
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Definition
| Measures of the increases in or inflows of net assets (assets minus liabilities) resulting from the sale of goods and services. |
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Definition
| Measures of decreases in or outflows of net assets (assets minus liabilities) incurred in connection with the generation of revenues. |
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Definition
| A listing of all revenues earned and expenses incurred during a specific period of time; also called statement of operations or statement of earnings. |
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Term
| Statement of Retained Earnings |
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Definition
| A reconciliation of a corporation’s retained earnings account from the beginning of a period to the end; the account is increased by net income and decreased by net loss and/or dividends declared. |
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Definition
| A listing of all asset, liability, and stockholders’ equity accounts at a specific point in time; also called statement of financial position. |
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| A listing of all cash inflows (sources) and cash outflows (uses) during a specific period of time categorized as operating activities, investing activities, and financing activities. |
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| Difference between sales and cost of goods sold; also called gross margin or markup. |
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| Difference between sales and cost of goods sold; also called gross profit or markup. |
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| Difference between sales price and cost of goods sold on an item of inventory; also called gross profit or gross margin. |
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| Principle of Conservatism |
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Definition
| Preference of accountants to avoid making an organization look overly good; when faced with multiple reporting options that are equally likely, the worse possible outcome is reported to help protect the decision maker from being too optimistic. |
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Term
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Definition
| Ownership (equity) shares of stock in a corporation that are issued to raise financing for capital expenditures and operations. |
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Definition
| A type of capital stock that is issued by every corporation; it provides rights to the owner that are specified by the laws of the state in which the organization is incorporated. |
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Term
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Definition
| Amounts invested in a corporation by individuals or groups in order to attain ownership interests; balance is reported within stockholders’ equity section of balance sheet to indicate the amount of the net assets that came from the owners. |
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Term
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Definition
| Accumulated total of the net income earned by an organization during its existence in excess of dividends distributed to the owners; indicates the amount of the net assets currently held that came from operations over the life of the organization. |
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Term
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Definition
| Assets = liabilities + stockholders’ equity. The equation balances because all assets must have a source: a liability, a contribution from an owner (contributed capital), or from operations (retained earnings). |
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Term
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Definition
| A statement of cash flow category used to disclose cash receipts and disbursements arising from the primary activities of the reporting organization. |
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Term
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Definition
| A statement of cash flow category used to disclose cash receipts and disbursements arising from an asset transaction other than one relating to the primary activities of the reporting organization. |
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Term
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Definition
| A statement of cash flow category used to disclose cash receipts and disbursements arising from a liability or stockholders’ equity transaction other than one relating to the primary activities of the organization. |
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