Accounting Terms: Ch 1

Accounting

is the process of planning, recording, analyzing, and interpreting financial information.

Accounting System

is a planned process designed to compile financial data and summarize the results in accounting records and reports.

Financial Statements

Financial reports that summarize the financial condition and operations of a business are called

Net Worth System

allows the person extending the loan to see the financial position of a borrower on a specific date and make a lending decision.

Asset

Anything of value that is owned

Liability

an amount owed

Personal Net Worth

The difference between personal assets and personal liabilities

Equity

the difference between assets and liabilities.In business, net worth is also called equity.

Ethics

the principles of right and wrong that guide an individual in making decisions

Business Ethics

The use of ethics in making business decisions

Service Business

a business that performs an activity for a fee

Propietership

A business owned by one personA proprietorship is sometimes referred to as a sole proprietorship

Business Plan

a formal written document that describes the nature of a business and how it will operate

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

Equities

Financial rights to the assets of a business

Owner's Equity

the amount remaining after the value of all liabilities is subtracted from the value of all assets

Accounting Equation

Assets = Liabilities + Owner's EquityThe equation showing the relationship among assets, liabilities, and owner's equity.

Transaction

Accountants call any business activity that changes assets, liabilities, or owner's equity.

Account

a record summarizing all the information pertaining to a single item in the accounting equation

Account Title

the name given to an account

Account Balance

the difference between the increases and decreases in an account

Capital Account

An account used to summarize the owner's equity in a business.

Creditor

A person or business to whom a liability is owed