chapter 1, accounting

accounting equation

equation that shows a company's resources (assets) equal creditors' and owners' claims to those resources (liabilities and stockholders' equity)

assets

resources owned by a company

auditors

trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements.

balance sheet

a financial statement that presents the financial position of the company on a particular date

corporation

an entity that is legally separate from its owners

dividends

cash payments to stockholders

expense

costs of providing products and services

financial accounting

measurement of business activities of a company and communication of those measurements to external parties for decision making purposes

financial statements

periodic reports published by the company for the purpose of providing information to external users

financing activities

transactions involving external sources of funding

generally accepted accounting princples (GAAP)

the rules of financial accounting

income statement

a financial statement that reports the company's revenues and expenses over an interval of time

investing activities

transactions involving the purchase and sale of 1) long term resources such as land, buildings, equipment, and machinery and 2) any resources not directly related to a company's normal operations

liabilties

amounts owed to creditors

net income

difference between revenues and expenses

operating activities

transactions involving the primary operations of the company, such as providing products and services to customers and the associated costs of doing so, like utilities, taxes, advertising, wages, rent, and maintenance

retained earnings

cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends

revenues

amounts earned from selling products or services to customers

statement of stockholders' equity

a financial statement that summarizes the changes in stockholders' equity over an interval of time

stockholders' equity

stockholders', or owners', claims to resources, which equal the difference between total assets and total liabilities

creditors

make decisions related to lending money to the company

investors

make decisions related to buying and selling the company's stock (shares of ownership)

common stock

external source of stockholders' equity