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Accounting terms
A set of flashcards for the important terminology in accounting
43
Accounting
Undergraduate 1
01/16/2012

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Term
Financial accounting
Definition
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.
Term
Interest
Definition
The charge for using money over time, often associated with long-term loans; even if not specifically mentioned in the debt agreement, US GAAP requires it to be computed and reported based on a reasonable rate
Term
Managerial Accounting
Definition
The communication of financial information within an organization so internal decision can be made in an appropriate manner.
Term
Incorporation
Definition
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
Term
Corporation
Definition
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
Term
Sole Proprietorship
Definition
A business created, owned, and operated by a single individual; business is not legally separate from its owner through incorporation
Term
Partnership
Definition
A business created, owned, and operated by more than one individual; business is not legally separate from its owners through incorporation.
Term
Stockholders
Definition
Individuals or organizations that hold the ownership shares of stock of a corporation; same as shareholders.
Term
Shareholders
Definition
Individuals or organizations that hold the ownership shares of stock of a corporation; same as stockholders.
Term
Capital Stock
Definition
Ownership (equity) shares of stock in a corporation that are issued to raise financing for capital expenditures and operations.
Term
New York Stock Exchange
Definition
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.
Term
Board of directors
Definition
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.
Term
NASDAQ (National Association of Securities Dealers Automated Quotations)
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.
Term
Long Term Capital gain or loss
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.
Term
Dividends
Definition
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.
Term
Inventory
Definition
A current asset bought or manufactured for the purpose of selling in order to generate revenue.
Term
Representational Faithfulness
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.
Term
Presents Fairly
Definition
Financial information that contains no material misstatements in accordance with U.S. generally accepted accounting principles (U.S. GAAP).
Term
Financial Statements
Definition
Quantitative reports and related verbal disclosures describing and detailing the operations, financial position, and cash flows of an organization.
Term
Materiality
Definition
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.
Term
Misstatement
Definition
An error or fraud that causes financial information to differ from U.S. generally accepted accounting principles.
Term
Error
Definition
An unintentional misstatement of financial information.
Term
Fraud
Definition
An intentional misstatement of financial information; it can result from misappropriation of assets (theft) or fraudulent financial reporting.
Term
U.S. generally accepted accounting principles (U.S. GAAP)
Definition
A recognized set of accounting rules used and followed in the United States of America.
Term
Assets
Definition
Future economic benefits owned or controlled by an organization.
Term
Liabilities
Definition
Future sacrifices of economic benefits arising from present obligations; the debts of an organization.
Term
Revenues
Definition
Measures of the increases in or inflows of net assets (assets minus liabilities) resulting from the sale of goods and services.
Term
Expenses
Definition
Measures of decreases in or outflows of net assets (assets minus liabilities) incurred in connection with the generation of revenues.
Term
Inventory
Definition
A current asset bought or manufactured for the purpose of selling in order to generate revenue.
Term
Income Statement
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.
Term
Statement of Retained Earnings
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.
Term
Balance Sheet
Definition
A listing of all asset, liability, and stockholders’ equity accounts at a specific point in time; also called statement of financial position.
Term
Statement of cash flows
Definition
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.
Term
Gross Profit
Definition
Difference between sales and cost of goods sold; also called gross margin or markup.
Term
Principle of Conservatism
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.
Term
Capital Stock
Definition
Ownership (equity) shares of stock in a corporation that are issued to raise financing for capital expenditures and operations.
Term
Common Stock
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.
Term
Contributed Captial
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.
Term
Retained Earnings
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.
Term
Accounting Equation
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).
Term
Operating Activities
Definition
A statement of cash flow category used to disclose cash receipts and disbursements arising from the primary activities of the reporting organization.
Term
Investing Activities
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.
Term
Financing Activities
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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