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WHAT IS ACCOUNTING?

ACCOUNTING

The
information
system
that
KIESO
identifies,
records,
and
communicates the economic events
of an organization to interested
users. (p. 4).
p. 6 Information system designed to PATRICA
capture
and
communicate
a
businesss financial condition and
financial performance to decision
makers inside and outside the
organization.
An
information
system
that NEEDLE
measures,
processes,
and
S
communicates financial information
about an economic entity. (LO1)
Information
and
measurement
WILD
system that identifies, records, and
communicates relevant information
about
a
companys
business
activities. (p. 4)
The
information
system
that HORNGR
EN
measures
business
activities,
processes that information into
reports, and communicates the
results to decision makers.
An information system that provides WARREN
reports to stakeholders about the
economic activities and condition of
a business. (7)
Service- based profession that EDMON
provides
reliable
and
relevant
D
financial
information
useful
in
making decisions. p. 2
A system of gathering financial COLLEG
information about a business and
E
reporting this information to users.
A system for providing quantitative, ALBREC
financial
information
about
HT

ANALYZING (5)
PROCESSING
(34)
CLASSIFYING
(5)
RECORDING
(5)
SUMMARIZING
(5)
REPORTING (5)
INTERPRETING
(5)

economic entities that is useful for


making sound economic decisions.
Accounting is often called the
language of business because it
provides the means of recording and
communicating business activities
and the results of those activities.
Looking at events that have taken
place and thinking about how they
affect the business.
Recognizing
the
effect
of
transactions
on
the
assets,
liabilities, owners equity, revenues,
and expenses of a business.
Sorting and grouping similar items
together rather than merely keeping
a simple, diary- like record of
numerous events.
Entering financial information about
events affecting the company into
the accounting system.
Bringing the various items of
information together to determine a
result.
Telling the results of the financial
information.
Deciding
the
meaning
and
importance of the information in
various reports.

BOOKKEEPING A part of accounting that involves


only the recording of economic
events. (p. 5).
The process of recording financial
transactions and keeping financial
records. (LO1)
Part of accounting that involves
recording transactions and events,

COLLEGE
(8)
COLLEGE
(8)

COLLEGE
(8)

COLLEGE
(8)
COLLEGE
(8)
COLLEGE
(8)
COLLEGE
(8)

KIESO
NEEDLE
S
WILD

RECORDKEEPI
NG (P. 4)

BOOKKEEPER
(8)
ACCOUNTANT
(8)
ACCOUNTING
CLERK (8)
PARAACCOUNTANT
(8)
CONTROLLER
(10)

ACCOUNTING
SYSTEM

ACCOUNTING
INFORMATION
SYSTEMS (10)
INPUT (34)

either manually or electronically;


also called bookkeeping. (p. 4)
The preservation of a systematic,
quantitative record of an activity.
Part of accounting that involves
recording transactions and events,
either manually or electronically;
also called bookkeeping. (p. 4)
Generally supervises the work of
accounting clerks, helps with daily
accounting work, and summarizes
accounting information.
Designs the accounting information
system and focuses on analyzing
and interpreting information.
Records, sorts, and files accounting
information.
A paraprofessional who provides
many accounting, auditing, or tax
services
under
the
direct
supervision of an accountant.
The accountant who oversees the
entire accounting process and is the
principal accounting officer of a
company.
The procedures and processes used
by
a
business
to
analyze
transactions,
handle
routine
bookkeeping tasks, and structure
information so it can be used to
evaluate the performance and
health of the business.
Accountants in this area design and
implement
manual
and
computerized accounting systems.
Business transactions provide the

ALBREC
HT
WILD(4)

COLLEG
E
COLLEGE
(8)
COLLEGE
(8)
COLLEGE
(8)

COLLEGE
(8)

ALBRECH
T(9)

COLLEGE
(8)
COLLEGE

OUTPUT (34)

PRIVATE
ACCOUNTING

PUBLIC
ACCOUNTING

CERTIFIED
PUBLIC
ACCOUNTANT

(8)
necessary input for the accounting
information system.
The financial statements are the COLLEGE
(8)
output
of
the
accounting
information system.

p. 6 Sector of the accounting


profession in which accountants are
employed by a single business or
nonprofit organization.
The field of accounting whereby
accountants are employed by a
business firm or a not-for-profit
organization. (9)
p. 6 Sector of the accounting
profession in which accountants
charge fees for services to a variety
of organizations.
The field of accounting where
accountants and their staff provide
services on a fee basis. (9)
p. 6 Individual who becomes a
licensed accounting professional.
A public accountant who has met
stringent
state
licensing
requirements. (LO7)
Licensed accountants who serve the
general public rather than one
particular company.
Public accountants who have met a
states education, experience, and
examination requirements. (10)
A public accountant who has met
certain educational and experience
requirements and has passed an
examination
prepared
by
the

PATRICA

WARREN

PATRICA

WARREN

PATRICA
NEEDLE
S
HORNGR
EN

WARREN
COLLEG
E

American Institute of Certified Public


Accountants.
A special designation given to an
accountant who has passed a
national uniform examination and
has
met
other
certifying
requirements.
CERTIFIED
A forensic accountant who has
FRAUD
passed the exam offered by the
EXAMINER
Association
of
Certified
Fraud
(CFE) (9)
Examiners.
CERTIFIED
An internal auditor who has
INTERNAL
achieved professional recognition by
AUDITOR (CIA) passing the uniform examination
(10)
offered by the Institute of Internal
Auditors.
CERTIFIED
An accountant who has passed an
MANAGEMENT examination offered by the Institute
ACCOUNTANT of Management Accountants.
(CMA) (10)
A private accountant employed by
companies, government, and notfor-profit entities, requiring a college
degree, two years of experience,
and successful completion of a two
day examination. (9)
A certified accountant who works for
a single company.
MANAGERIAL
ACCOUNTING

ALBREC
HT

COLLEGE
(8)

COLLEGE
(8)

COLLEGE
(8)
WARREN
(6)

HORNGREN(
5)

The field of accounting that provides


KIESO
internal reports to help users make
decisions about their companies. (p.
6).
p. 7 Accounting area focused on PATRICA
providing information to assist
managers in
making business
decisions.
The process of producing accounting NEEDLE
information for internal use by
S

FINANCIAL
ACCOUNTING

COST
ACCOUNTING
(10)
FORENSIC
ACCOUNTING
(9)

managers. (LO1)
The field of accounting that provides
economic and financial information
for investors, creditors, and other
external users. (p. 7).
p. 766 Area of accounting that
prepares
information
used
by
external parties, such as investors,
creditors, and regulators.
The process of generating and
communicating
accounting
information in the form of financial
statements to those outside the
organization. (LO1)
Area of accounting aimed mainly at
serving external users. (p. 5)
The branch of accounting that
focuses on information for people
outside the firm.
The branch of accounting that is
concerned
with
recording
transactions
using
generally
accepted
accounting
principles
(GAAP) for a business or other
economic unit and with a periodic
preparation of various statements
from such records. (8, 794)
Includes preparing various reports
and
financial
statements
and
analyzing operating, investing, and
financing decisions.
Determining the cost of producing
specific
products
or
providing
services and analyzing for cost
effectiveness.
A specialized field that combines
fraud detection, fraud prevention,
litigation support, expert witnessing,
business valuations, and other

KIESO

PATRICA

NEEDLE
S

WILD
HORNGR
EN

WARREN

COLLEG
E
COLLEGE
(8)

COLLEGE
(8)

TAX
ACCOUNTING
(10)
TAXATION (9)
MANAGERIAL
ACCOUNTING
(P. 2)

investigative activities.
Services focused on tax planning, COLLEGE
(8)
preparing tax returns, and dealing
with the Internal Revenue Service
and other governmental agencies.
COLLEGE
See tax accounting.
(8)

The branch of accounting that


focuses on information for internal
decision makers of a business.
Area of accounting aimed mainly at WILD(4)
serving the decision- making needs
of internal users; also called
management accounting. (pp. 6 &
732)
MANAGEMENT The branch of accounting that uses WARREN
(6)
(OR
both historical and estimated data
MANAGERIAL) in
providing
information
that
ACCOUNTING
management uses in conducting
(9)
daily operations, in planning future
operations,
and
in
developing
overall business strategies. (9, 795)
The area of accounting concerned ALBRECH
T(9)
with providing internal financial
reports to assist management in
making decisions.
MANAGEMENT Providing advice to businesses on a COLLEGE
(8)
ADVISORY
wide variety of managerial issues.
SERVICES (9)
AUDIT

HORNGREN(
5)

An examination of a companys NEEDLES


financial statements in order to
render an independent professional
opinion about whether they have
been presented fairly, in all material
respects, in conformity with GAAP.
(LO7)
Analysis
and
report
of
an WILD(4)

AUDITING (9)
AUDITORS (P.
13)

AUDIT
COMMITTEE

INTERNAL
AUDITING (10)

organizations accounting system,


its records, and its reports using
various tests. (p. 12)
An examination of a companys
financial records.
Reviewing and testing to be certain
that proper accounting policies and
practices have been followed.
Individuals hired to review financial
reports and information systems.
Internal auditors of a company are
employed to assess and evaluate its
system
of
internal
controls,
including the resulting reports.
External auditors are independent of
a company and are hired to assess
and evaluate the fairness of
financial statements (or to perform
other contracted financial services)
(p. 13).
A subgroup of a corporations board
of directors that is charged with
ensuring that the board will be
objective
in
reviewing
managements
performance;
it
engages
the
companys
independent auditors and reviews
their work. (LO7)
Members of a companys board of
directors who are responsible for
dealing with the external and
internal auditors.
Reviewing
the
operating
and
accounting
control
procedures
adopted by management to make
sure the controls are adequate and
being
followed;
assuring
that
accurate and timely information is
provided.

HORNGREN(
5)

COLLEGE
(8)
WILD(4)

NEEDLES

ALBRECH
T(9)

COLLEGE
(8)

INTERNAL
AUDITORS

EXTERNAL
AUDITORS

An independent group of experts (in


controls,
accounting,
and
operations) who monitor operating
results
and
financial
records,
evaluate internal controls, assist
with increasing the efficiency and
effectiveness of operations, and
detect fraud.
Independent CPAs who are retained
by organizations to perform audits
of financial statements.

ALBRECH
T(9)

ALBRECH
T(9)

THE BUILDING BLOCKS OF ACCOUNTING


ETHICS

CODE OF
PROFESSIONAL
CONDUCT

The standards of conduct by which


KIESO
ones actions are judged as right or
wrong, honest or dishonest, fair or
not fair. (p. 8).
p. 24 Standards of conduct for PATRICA
judging right from wrong, honest
from dishonest, and fair from
unfair.
A code of conduct that addresses NEEDLE
whether actions are right or wrong.
S
(LO1)
Moral principles that guide the WARREN
(6)
conduct of individuals. (4)
Codes of conduct by which actions WILD(4)
are judged as right or wrong, fair or
unfair, honest or dishonest. (pp. 8
& 736)
p. 24 Rules established by the PATRICA
American Institute of Certified
Public Accountants to govern the
ethical performance of professional
services by CPAs.
A set of guidelines established by EDMOND
(7)
the American Institute of Certified
Public Accountants (AICPA) to

INTERNAL
CONTROLS

CORPORATE
GOVERNANCE
DUE CARE
PROFESSIONAL
ETHICS
FIDUCIARY
RESPONSIBILIT
Y (P. 7)
RATIONALIZATI
ON 67
PRESSURE 67

GENERALLY
ACCEPTED

promote high ethical conduct


among its membership. p. 64
p. 344 Methods an organization
uses to protect against theft of
assets, to enhance the reliability of
accounting information, to promote
efficient and effective operations,
and to ensure compliance with
applicable laws, regulations, and
codes of ethical conduct.
A
companys
policies
and
procedures designed to reduce the
opportunity for fraud and to
provide reasonable assurance that
its objectives will be accomplished.
pp. 67, 140
The oversight of a corporations
management and ethics by the
board of directors. (LO7)
Competence and diligence in
carrying
out
professional
responsibilities. (LO7)
A code of conduct that applies to
the practice of a profession. (LO7)
An ethical and legal obligation to
perform a persons duties in a
trustworthy manner.
An element of the fraud triangle
that recognizes a human tendency
to justify fraudulent or unethical
behavior. p. 67
An element of the fraud triangle
that recognizes conditions that
motivate fraudulent or unethical
behavior. p. 67
Common standards that indicate
how to report economic events. (p.

PATRICA

EDMOND
(7)

NEEDLE
S
NEEDLE
S
NEEDLE
S
HORNGREN(
5)

EDMOND
(7)

EDMOND
(7)

KIESO

ACCOUNTING
PRINCIPLES
(GAAP)

GAAP OVAL

GENERALLY

9).
p. 23 Accounting measurement and PATRICA
reporting rules to be applied by
businesses.
The
conventions,
rules,
and NEEDLES
procedures that define accepted
accounting practice at a particular
time. (LO7)
Authoritative guidelines that define ALBRECH
T(9)
accounting practice at a particular
time.
Generally accepted guidelines for WARREN
(6)
the
preparation
of
financial
statements. (10)
Procedures
and
guidelines COLLEGE
(8)
developed
by
the
Financial
Accounting Standards Board to be
followed in the accounting and
reporting process.
Accounting guidelines, formulated HORNGREN(
5)
by
the
Financial
Accounting
Standards Board, that govern how
accountants measure, process, and
communicate financial information.
Rules
that
specify
acceptable WILD(4)
accounting practices. (p. 8)
Rules
and
regulations
that EDMOND
(7)
accountants agree to follow when
preparing financial reports for public
distribution. p. 5
A diagram that represents the ALBRECH
T(9)
flexibility a manager has, within
GAAP, to report one earnings
number
from
among
many
possibilities based on different
methods and assumptions.
Auditing standards developed by

ALBRECH

ACCEPTED
AUDITING
STANDARDS
(GAAS)

the PCAOB for public companies


and AICPA for private companies.

FINANCIAL
ACCOUNTING
STANDARDS
BOARD (FASB)

A
private
organization
that [KIESO]
establishes
generally
accepted
accounting principles (GAAP). (p. 9).
p. 23 Entity with the primary [PATRIC
responsibility (as designated by the
A]
Securities
and
Exchange
Commission) of setting underlying
rules of accounting in the United
States.
The most important body for [NEEDLE
developing rules on accounting
S]
practice; it issues Statements of
Financial Accounting Standards.
(LO7)
Field of accounting designed to EDMOND
(7)
meet the information needs of
external
users
of
business
information (creditors, investors,
governmental agencies, financial
analysts, etc.); its objective is to
classify and record business events
and transactions to facilitate the
production of external financial
reports (income statement, balance
sheet, statement of cash fl ows, and
statement of changes in equity). p.
363
The private organization responsible ALBRECH
T(9)
for establishing the standards for
financial accounting and reporting in
the United States.
The authoritative body that has the WARREN
(6)
primary responsibility for developing

T(9)

DISCUSSION
MEMORANDU
M (5)
EXPOSURE
DRAFT (6)

STATEMENT
OF FINANCIAL
ACCOUNTING
STANDARDS
(SFAS) (6)
SECURITIES
AND
EXCHANGE
COMMISSION
(SEC)

accounting principles. (10)


The
private
organization
that HORNGREN(
5)
determines how accounting is
practiced in the United States.
Independent group of full- time WILD(4)
members responsible for setting
accounting rules. (p. 9)
The first document issued by FASB COLLEGE
(8)
when developing an accounting
standard. This document identifies
the pros and cons of various
accounting treatments for an event.
This document explains the rules COLLEGE
(8)
that FASB believes firms should
follow in accounting for a particular
event. Based on the responses to
the exposure draft, the Board will
decide if any changes are necessary
before issuing a final standard.
A standard issued by the Financial COLLEGE
(8)
Accounting Standards Board. These
standards must be followed when
preparing financial statements.

A
governmental
agency
that
KIESO
oversees U.S. financial markets and
accounting standard-setting bodies.
(p. 9).
p. 23 Governmental agency that PATRICA
supervises the work of the Financial
Accounting Standards Board and the
Public
Company
Accounting
Oversight Board.
A
governmental
agency
that NEEDLE
regulates the issuing, buying, and
S
selling of stocks. It has the legal
power to set and enforce accounting

practices for firms whose securities


are sold to the general public. (LO2)
The government body responsible
for regulating the financial reporting
practices of most publicly owned
corporations in connection with the
buying and selling of stocks and
bonds.
The government body responsible
for regulating the financial reporting
practices of most publicly owned
corporations in connection with the
buying and selling of stocks and
bonds.
Federal
agency
Congress
has
charged to set reporting rules for
organizations that sell ownership
shares to the public. (p. 9)
INTERNATION
AL
ACCOUNTING
STANDARDS
BOARD (IASB)

ALBRECH
T(9)

ALBRECH
T(9)

WILD(4)

An
accounting
standard-setting
KIESO
body that issues standards adopted
by many countries outside of the
United States. (p. 9).
An organization that encourages NEEDLES
worldwide
cooperation
in
the
development
of
accounting
principles. (LO7)
The committee formed in 1973 to ALBRECH
T(9)
develop
worldwide
accounting
standards.
Group that identifies preferred WILD(4)
accounting
practices
and
encourages
global
acceptance;
issues
International
Financial
Reporting Standards (IFRS). (p. 9)
The organization that determines HORNGREN(
5)
how
accounting
is
practiced
internationally.

INTERNATION
AL FINANCIAL
REPORTING
STANDARDS
(IFRS) (P. 4)

SARBANESOXLEY ACT OF
2002 (SOX)

Accounting guidelines, formulated


by the International Accounting
Standards Board, that govern how
accountants measure, process, and
communicate financial information.
International Financial Reporting
Standards (IFRS) are required or
allowed by over 100 countries; IFRS
is
set
by
the
International
Accounting Standards Board (IASB),
which aims to develop a single set
of global standards, to promote
those standards, and to converge
national and international standards
globally. (p. 9)

HORNGREN(
5)

WILD(4)

Law passed by Congress in 2002


KIESO
intended
to
reduce
unethical
corporate behavior. (p. 8).
An act of Congress that regulates NEEDLE
financial
reporting
in
public
S
corporations. (LO1)
A law passed by Congress in 2002 ALBRECH
T(9)
that gives the SEC significant
oversight responsibility and control
over companies issuing financial
statements and their
external
auditors.
An act passed by Congress to help COLLEGE
(8)
improve reporting practices of
public companies.
Created
the
Public
Company WILD(4)
Accounting
Oversight
Board,
regulates analyst conflicts, imposes
corporate governance requirements,
enhances accounting and control
disclosures,
impacts
insider
transactions and executive loans,

FOREIGN
CORRUPT
PRACTICES
ACT (FCPA)

establishes new types of criminal


conduct, and expands penalties for
violations of federal securities laws.
(pp. 12 & 316)
Legislation requiring any company
that has publicly- traded stock to
have an adequate system of internal
accounting controls.

ALBRECH
T(9)

Public
Company
Accounting
Oversight
Board
(PCAOB)

p. 23 Entity that sets rules for PATRICA


auditors in the United States.
A governmental body created by the NEEDLE
Sarbanes- Oxley Act to regulate the
S
accounting profession. (LO7)
Board of five full- time members ALBRECH
T(9)
established by the Sarbanes- Oxley
Act to oversee the accounting and
auditing profession.

American
Institute of
Certified
Public
Accountants
(AICPA)

The professional association of NEEDLE


certified public accountants. (LO7)
S
The national organization of CPAs in ALBRECH
T(9)
the United States.
National association that serves the EDMOND
(7)
educational
and
professional
interests of members of the public
accounting profession; membership
is voluntary. p. 64
A professional organization made up NEEDLE
primarily
of
management
S
accountants. (LO7)

Institute of
Management
Accountants
(IMA)
Governmental
Accounting
Standards

The board responsible for issuing


accounting standards for state and
local governments. (LO7)

NEEDLE
S

Board (GASB)
Internal
Revenue
Service (IRS)

ACCOUNTING
MODEL

The agency that interprets and


enforces the tax laws governing the
assessment
and
collection
of
revenue for operating the federal
government. (LO7)
A
government
agency
that
prescribes the rules and regulations
that govern the collection of tax
revenues in the United States.

The basic accounting assumptions,


concepts,
principles,
and
procedures that determine the
manner of recording, measuring,
and
reporting
a
companys
transactions.
CONVERGENCE The process of reducing the
differences between GAAP and
IFRS. (p. 9).
RELEVANCE
Financial information that is capable
of making a difference in a decision.
(p. 9).
Characteristic
of
financial
information stating that information
that is helpful in making decisions
should be reported.
RELIABLE
p. 23 Characteristic of financial
information stating that information
is most useful when it is unbiased
and verifiable.
COMPARABLE
p. 23 Characteristic of financial
information stating that information
is more useful when it can be
compared against information for
other companies.
CONSISTENT
p. 23 Characteristic of financial
information stating that information

NEEDLE
S

ALBRECH
T(9)

ALBRECH
T(9)

KIESO
KIESO
PATRICA

PATRICA

PATRICA

PATRICA

FAITHFUL
REPRESENTATI
ON
COST
PRINCIPLE

FAIR VALUE
PRINCIPLE

MONETARY
UNIT
ASSUMPTION

SEPARATE
ENTITY

is more useful when it can be


compared over time.
Numbers and descriptions match
KIESO
what really existed or happenedit
is factual. (p. 9).
An accounting principle that states
KIESO
that companies should record
assets at their cost. (p. 9).
The idea that transactions are ALBRECH
T(9)
recorded at their historical costs or
exchange prices at the transaction
date.
Accounting principle that prescribes WILD(4)
financial statement information to
be based on actual costs incurred in
business transactions. (p. 10)
A principle that states that acquired HORNGREN(
5)
assets and services should be
recorded at their actual cost.
An accounting principle stating that
KIESO
assets and liabilities should be
reported at fair value (the price
received to sell an asset or settle a
liability). (p. 9).
An
assumption
stating
that
KIESO
companies
include
in
the
accounting records only transaction
data that can be expressed in terms
of money. (p. 10).
p. 15 Theoretical concept stating PATRICA
that
financial
information
is
reported in the standard monetary
denomination of the country in
which the business operated.
Principle that assumes transactions WILD(4)
and events can be expressed in
money units. (p. 11)
p. 10 Assumption that activities of PATRICA
the
business
are
reported

ASSUMPTION

ECONOMIC
ENTITY
ASSUMPTION
BUSINESS
ENTITY (20)
BUSINESS
ENTITY
ASSUMPTION
(P. 11)
BUSINESS
ENTITY
CONCEPT (11)

COST
COST
CONCEPT (11)
CONSERVATIS
M 51
EXPENSE

separately from activities of its


owners.
A business that is treated as distinct
from its creditors, customers, and
owners. (LO3)
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. (p. 10).
An
individual,
association,
or
organization
that
engages
in
economic activities and controls
specific economic resources.
Principle that requires a business to
be accounted for separately from its
owner(s) and from any other entity.
(p. 11)
A concept of accounting that limits
the
economic
data
in
the
accounting system to data related
directly to the activities of the
business. (11)
The concept that nonbusiness
assets and liabilities are not
included in the business entitys
accounting records.
Measure of resources used to
acquire an asset or to produce
revenue. p. 52
A concept of accounting that
determines the amount initially
entered into the accounting records
for purchases. (11)
A principle that guides accountants
in uncertain circumstances to select
the alternative that produces the
lowest amount of net income. p. 61
Prescribes expenses to be reported

NEEDLE
S
KIESO

COLLEGE
(8)

WILD(4)

WARREN
(6)

COLLEGE
(8)

EDMOND
(7)
WARREN
(6)

EDMOND
(7)

WILD(4)

RECOGNITION
PRINCIPLE (P.
11)
FISCAL YEAR
(25)
ACCOUNTING
PERIOD

ACCOUNTING
PERIOD
CONCEPT (25)
TIME PERIOD
ASSUMPTION
(P. 11)
FAITHFUL
REPRESENTATI
ON PRINCIPLE
(P. 10)

FULL
DISCLOSURE
PRINCIPLE (P.
11)
GOING
CONCERN
ASSUMPTION

GOINGCONCERN

in the same period as the revenues


that were earned as a result of the
expenses. (pp. 11 & 364)
Any accounting period of 12 COLLEGE
(8)
months duration.
Span of time covered by the EDMOND
(7)
financial statements, normally one
year, but may be a quarter, a
month or some other time span. p.
16
The
concept
that
income COLLEGE
(8)
determination can be made on a
periodic basis.
Assumption that an organizations WILD(4)
activities can be divided into
specific time periods such as
months, quarters, or years. (pp. 11
& 94)
Principle that asserts accounting HORNGREN(
5)
information is based on the fact
that the data faithfully represents
the measurement or description of
that data. Faithfully represented
data are complete, neutral, and free
from material error.
Principle that prescribes financial WILD(4)
statements (including notes) to
report all relevant information
about an entitys operations and
financial condition. (p. 11)
The idea that an accounting entity ALBRECH
T(9)
will have a continuing existence for
the foreseeable future.
Principle that prescribes financial WILD(4)
statements
to
reflect
the
assumption that the business will
continue operating. (p. 11)
This concept assumes that the HORNGREN(
5)
entity will remain in operation for

CONCEPT (P.
10)
HISTORICAL
COST

HISTORICAL
COST
CONCEPT 13
UNIT OF
MEASURE
CONCEPT (11)
STABLE
MONETARY
UNIT CONCEPT
(P. 11)
SEPARATE
ENTITY
CONCEPT
REVENUE
RECOGNITION
PRINCIPLE (P.
10)
RELIABILITY
CONCEPT 13
OBJECTIVITY
CONCEPT (11)

MEASUREMEN
T PRINCIPLE
(P. 10)

the foreseeable future.


p. 9 Accounting principle stating PATRICA
that assets are initially measured at
the total cost to acquire them.
The
dollar
amount
originally ALBRECH
T(9)
exchanged in an arms-length
transaction; an amount assumed to
reflect the fair market value of an
item at the transaction date.
Actual price paid for an asset when EDMOND
(7)
it was purchased. pp. 13, 211
A concept of accounting requiring
that economic data be recorded in
dollars. (11)
The
concept
that
says
that
accountants
assume that the dollars purchasing
power is stable.
The idea that the activities of an
entity are to be separated from
those of the individual owners.
The principle prescribing that
revenue is recognized when earned.
(p. 10)

WARREN
(6)
HORNGREN(
5)

ALBRECH
T(9)
WILD(4)

Information is reliable if it can be EDMOND


(7)
independently
verified.
Reliable
information is factual rather than
subjective. p. 13
A concept of accounting that WARREN
(6)
requires accounting records and the
data
reported
in
financial
statements be based on objective
evidence. (11)
Accounting information is based on WILD(4)
cost with potential subsequent
adjustments to fair value; see also

MONETARY
MEASUREMEN
T

MATCHING
CONCEPT (18)

MATCHING
PRINCIPLE (P.
11)

ENTITY

BUSINESS

cost principle. (p. 10)


The idea that money, as the ALBRECH
T(9)
common medium of exchange, is
the
accounting
unit
of
measurement,
and
that
only
economic activities measurable in
monetary terms are included in the
accounting model.
A concept of accounting in which WARREN
(6)
expenses are matched with the
revenue generated during a period
by those expenses. (18, 104)
Process of matching expenses with EDMOND
(7)
the revenues they produce; three
ways to match expenses with
revenues
include
matching
expenses directly to revenues,
matching expenses to the period in
which they are incurred, and
matching expenses systematically
with revenues. pp. 51, 182
Prescribes expenses to be reported WILD(4)
in the same period as the revenues
that were earned as a result of the
expenses. (pp. 11 & 364)
An organizational unit (a person, ALBRECH
T(9)
partnership, or corporation) for
which accounting records are kept
and about which accounting reports
are prepared.
An organization or a section of an HORNGREN(
5)
organization that, for accounting
purposes, stands apart from other
organizations and individuals as a
separate economic unit.
An economic unit that aims to sell NEEDLES
goods and services to customers at

prices that will provide an adequate


return to its owners. (LO1)
An organization operated with the
objective of making a profit from the
sale of goods or services.
An organization in which basic
resources
(inputs),
such
as
materials and labor, are assembled
and processed to provide goods or
services (outputs) to customers. (2)
BUSINESS
A person or entity who has an
STAKEHOLDER interest
in
the
economic
(4)
performance of a business. (4)
PROPRIETORS
HIP

ALBRECH
T(9)

WARREN
(6)

WARREN
(6)

A business owned by one person.


KIESO
(p. 10).
p. 4 Business owned by one PATRICA
individual.
A business that is owned by one NEEDLES
person and that is not incorporated.
(LO4)
A business owned by one individual. WARREN
(6)
(3)
Business owned by one person that WILD(4)
is not organized as a corporation;
also called proprietorship. (p. 11)
HORNGREN(
A business with a single owner.
5)

A type of ownership structure in COLLEGE


(8)
which
one person owns the
business.
Business owned by one person that WILD(4)
is not organized as a corporation;
also called proprietorship. (p. 11)
PARTNERSHIP

A business owned by two or more


persons associated as partners. (p.

KIESO

LIMITEDLIABILITY
PARTNERSHIP
(P. 6)
MUTUAL
AGENCY (P. 6)

11).
p. 506 An unincorporated business PATRICA
owned by two or more individuals.
A business that is owned by two or NEEDLES
more people and that is not
incorporated. (LO4)
An unincorporated business form WARREN
(6)
consisting of two or more persons
conducting business as co- owners
for profit. (3, 527)
A type of ownership structure in COLLEGE
(8)
which more than one person owns
the business.
Unincorporated association of two WILD(4)
or more persons to pursue a
business for profit as co- owners.
(pp. 11 & 480)
A business with two or more owners HORNGREN(
5)
and not organized as a corporation.
Company in which each partner is HORNGREN(
5)
only liable for his or her own actions
or those under his or her control.
The ability of partners in a
partnership
to
commit
other
partners and the business to a
contract.

HORNGREN(
5)

CORPORATION A business organized as a separate


KIESO
legal entity under state corporation
law, having ownership divided into
transferable shares of stock. (p. 11).
p. 5 Legal and accounting entity PATRICA
that sells shares of stock to owners.
A business unit granted a state NEEDLES
charter recognizing it as a separate
legal entity having its own rights,
privileges, and liabilities distinct

AUTHORIZATI
ON (P. 7)
ARTICLES OF
INCORPORATI
ON (P. 6)
CHARTER (P.
6)
SHARES (P.
12)
STOCK (P. 12)

STOCKHOLDE
R (P. 6)

from those of its owners. (LO4)


A business organized under state or WARREN
(6)
federal statutes as a separate legal
entity. (3)
A type of ownership structure in COLLEGE
(8)
which
stockholders
own
the
business. The owners risk is usually
limited to their initial investment,
and they usually have very little
influence on the business decisions.
Business that is a separate legal WILD(4)
entity under state or federal laws
with owners called shareholders or
stockholders. (pp. 12 & 508)
A business owned by stockholders. HORNGREN(
5)
A corporation begins when the state
approves its articles of incorporation
and the first share of stock is issued.
It is a legal entity, an artificial
person, in the eyes of the law.
The acceptance by the state of the HORNGREN(
5)
Corporate by laws.
The rules approved by the state that HORNGREN(
5)
govern the management of the
corporation.
Document that gives the states HORNGREN(
5)
permission to form a corporation.
Equity of a corporation divided into WILD(4)
ownership units; also called stock.
(p. 12)
Equity of a corporation divided into WILD(4)
ownership units; also called stock.
(p. 12)
A certificate representing ownership HORNGREN(
5)
interest in a corporation. The
holders
of
stock
are
called
stockholders or shareholders.
A person who owns stock in a HORNGREN(
5)
corporation.
Also
called
a

shareholder.
Owners of a corporation; also called
stockholders. (p. 12)
The owners of a corporation.

SHAREHOLDE
R (P. 6)

LIMITED
LIABILITY
COMPANY
(LLC) (4)

NONPROFIT
ORGANIZATIO
N

MANUFACTURI
NG BUSINESS
(3)

WILD(4)
ALBRECH
T(9)

Owners of a corporation. pp. 9, 291

EDMOND
(7)

A person who owns stock in a


corporation.
Also
called
a
stockholder.
Owners of a corporation; also called
stockholders. (p. 12)
A business form consisting of one
or more persons or entities filing an
operating agreement with a state to
conduct business with limited
liability to the owners, yet treated
as a partnership for tax purposes.
(4, 528)
Company in which each member is
only liable for his or her own actions
or those under his or her control.

HORNGREN(
5)

An entity without a profit objective,


oriented toward providing services
efficiently and effectively.
Organization
that
has
been
approved by the Internal Revenue
Service to operate for a religious,
charitable, or educational purpose.

ALBRECH
T(9)

WILD(4)

WARREN
(6)

HORNGREN(
5)

HORNGREN(
5)

A type of business that changes WARREN(


6)
basic inputs into products that are
sold to individual customers. (3)
A business that makes a product to COLLEGE
(8)
sell.
Companies that make the goods EDMOND

MERCHANDISI
NG BUSINESS
(3)

SERVICE
BUSINESS (3)

they sell to customers. p. 21


A type of business that purchases
products from other businesses and
sells them to customers. (3)
A business that buys products to
sell.
Companies that buy and resell
merchandise inventory. p. 21
A business providing services
rather than products to customers.
(3)
A business that provides a service.
Organizations such as accounting
and legal firms, dry cleaners, and
insurance companies that provide
services to consumers. p. 21

(7)
WARREN(
6)
COLLEGE
(8)
EDMOND
(7)
WARREN(
6)
COLLEGE
(8)
EDMOND
(7)

THE BASIC ACCOUNTING EQUATION


BUSINESS
TRANSACTION
S

Economic events that affect a NEEDLE


businesss financial position. (LO3)
S
An economic event or condition that WARREN
(6)
directly changes an entitys financial
condition or directly affects its
results of operations. (12)
An economic event that has a direct COLLEGE
(8)
impact on the business.
HORNGREN(
An event that affects the financial
5)
position of a particular entity and
can be measured and recorded
reliably.
Particular event that involves the EDMOND
(7)
transfer of something of value
between two entities. p. 9
Exchange of goods or services ALBRECH
T(9)
between
entities
(whether
individuals, businesses, or other
organizations), as well as other

EVENTS (P. 15)


ACCOUNTING
EVENT
ASSET
EXCHANGE
TRANSACTION
11

ASSET
SOURCE
TRANSACTION
10

ASSET USE
TRANSACTION
11

CLAIMS
EXCHANGE

events having an economic impact


on a business.
Happenings that both affect an
organizations financial position and
can be reliably measured. (p. 15)
Economic occurrence that causes
changes in an enterprises assets,
liabilities, or equity. p. 9
A transaction that decreases one
asset while increasing another asset
so that total assets do not change;
for example, the purchase of land
with cash. pp. 11, 14
A transaction that decreases one
asset while increasing another asset
so that total assets do not change;
for example, the purchase of land
with cash. pp. 11, 14
Transaction that increases an asset
and a claim on assets; three types
of asset source transactions are
acquisitions from owners (equity),
borrowings
from
creditors
(liabilities),
or
earnings
from
operations (revenues). pp. 10, 44
Transaction that decreases an asset
and a claim on assets; the three
types are distributions (transfers to
owners), liability payments (to
creditors), or expenses (used to
operate the business). pp. 11, 45
Transaction that decreases an asset
and a claim on assets; the three
types are distributions (transfers to
owners), liability payments (to
creditors), or expenses (used to
operate the business). pp. 11, 45
Transaction that decreases one
claim and increases another so that

WILD(4)

EDMOND
(7)
EDMOND
(7)

EDMOND
(7)

EDMOND
(7)

EDMOND
(7)

EDMOND
(7)

EDMOND
(7)

TRANSACTION
46

total claims do not change. For


example, the accrual of interest
expense is a claims exchange
transaction; liabilities increase, and
the recognition of the expense
causes
retained
earnings
to
decrease. p. 46

BASIC
ACCOUNTING
EQUATION

Assets = Liabilities + Owners


KIESO
Equity. (p. 12).
p. 9 Basic equation stating that PATRICA
assets equal liabilities plus owners
equity.
Assets = Liabilities + Owners NEEDLE
Equity. (LO5)
S
WILD(4)
Equality involving a companys
assets, liabilities, and equity; Assets
= Liabilities + Equity; also called
balance sheet equation. (p. 14)
An
algebraic
equation
that ALBRECH
T(9)
expresses the relationship between
assets
(resources),
liabilities
(obligations), and owners equity
(net assets, or the residual interest
in a business after all liabilities have
been met): Assets = Liabilities +
Owners Equity.
Assets = Liabilities + Owners WARREN
(6)
Equity (12)
The accounting equation consists of COLLEGE
(8)
the
three
basic
accounting
elements: Assets = Liabilities +
Owners Equity.
The basic tool of accounting, HORNGREN(
5)
measuring the resources of the
business and the claims to those
resources:
Assets
=
Liabilities + Equity.

EXPANDED
ACCOUNTING
EQUATION

ASSETS

Expression
of
the
relationship EDMOND
(7)
between the assets and the claims
on those assets. p. 8
Assets = Liabilities + Owners
KIESO
Capital - Owners Drawings +
Revenues - Expenses. (p. 14).
Assets = Liabilities + Equity; Equity WILD(4)
equals [Owner capital - Owner
withdrawals
+
Revenues
Expenses] for a non-corporation;
Equity equals [Contributed capital +
Retained earnings + Revenues Expenses] for a corporation where
dividends are subtracted from
retained earnings. (p. 14)
Resources a business owns. (p. 12).
KIESO
Measurable
economic
resource PATRICA
owned by the business that is likely
to provide future benefits.
The economic resources of a NEEDLE
company that are expected to
S
benefit future operations. (LO5)
An item that is owned by a business COLLEGE
(8)
and will provide future benefits.
An economic resource that is HORNGREN(
5)
expected to be of benefit in the
future.
Economic resources that are owned ALBRECH
T(9)
or controlled by a company.
The resources owned by a business. WARREN
(6)
(12, 51)
Resources a business owns or WILD(4)
controls that are expected to
provide current and future benefits
to the business. (p. 14)
Economic resources used by a EDMOND
(7)
business to produce revenue. p. 7

CURRENT
ASSETS
PRODUCTIVE
ASSETS 17
LONG- TERM
ASSETS
RETURN ON
ASSETS

ACCOUNT
RECEIVABLE
(15)

CLAIMS 8
LIABILITIES

Cash and other assets that can be


easily converted to cash within a
year.
Assets used to operate the business;
frequently called long- term assets.
p. 17
Assets that a company needs in
order to operate its business over
an extended period of time.
A ratio that shows how efficiently a
company is using its assets to
produce
income;
Net
Income/Average Total Assets.
Ratio reflecting operating efficiency;
defined as net income divided by
average total assets for the period;
also called return on assets or
return on investment. (p. 605)
A claim against the customer
created by selling merchandise or
services on credit. (15, 63, 394)
The right to receive cash in the
future from customers to whom the
business has sold goods or for
whom the business has performed
services.
An amount owed to a business by its
customers as a result of the sale of
goods or services.
Expected future cash receipt arising
from permitting a customer to buy
now and pay later; typically a
relatively small balance due within a
short time period. pp. 44, 70
Owners and creditors interests in a
businesss assets. p. 8
Creditor claims on total assets. (p.
13).

ALBRECH
T(9)

EDMOND
(7)
ALBRECH
T(9)

WILD(4)

WARREN
(6)
HORNGREN(
5)

COLLEGE
(8)
EDMOND
(7)

EDMOND
(7)

KIESO

CURRENT
LIABILITIES
LONG- TERM
LIABILITIES
ACCOUNT
PAYABLE (14)

p. 9 Measurable and probable


PATRICA
obligations that require the business
to pay goods or services to others in
the future.
A businesss present obligations to
NEEDLE
pay cash, transfer assets, or provide
S
services to other entities in the
future. (LO5)
Obligations to pay cash, transfer ALBRECH
T(9)
other assets, or provide services to
someone else.
The
rights
of
creditors
that WARREN
(6)
represent debts of the business. (12,
51)
Economic
obligations
(debts) HORNGREN(
5)
payable to an individual or an
organization outside the business.
Creditors
claims
on
an WILD(4)
organizations assets; involves a
probable future payment of assets,
products,
or
services
that
a
company is obligated to make due
to past transactions or events. (p.
14)
Obligations of a business to EDMOND
(7)
relinquish assets, provide services,
or accept other obligations. p. 8
Something
owed
to
another COLLEGE
(8)
business entity.
Liabilities expected to be satisfied ALBRECH
T(9)
within a year or the current
operating cycle, whichever is longer.
Liabilities that are not expected to ALBRECH
T(9)
be satisfied within a year.
The liability created by a purchase WARREN
(6)
on account. (14)
A liability backed by the general HORNGREN(
5)
reputation and credit standing of the
debtor.

An unwritten promise to pay a


supplier for assets purchased or
services received.
CREDITORS (P. Those to whom a business owes
3)
money.
Individuals or institutions that have
loaned goods or services to a
business. p. 7
SALARIES
Amounts of future cash payments
PAYABLE 46
owed to employees for services that
have already been performed. p. 46
NOTES
A formal written promise to pay a
PAYABLE (20)
supplier or lender a specified sum of
money at a definite future time.
OWNERS
EQUITY

NET WORTH

COLLEGE
(8)
HORNGREN(
5)

EDMOND
(7)
EDMOND
(7)
COLLEGE
(8)

The ownership claim on total assets.


KIESO
(p. 13).
Difference between the assets the PATRICA
business owns and the liabilities the
business owes. It represents the
owners stake in the business.
The claims of the owner of a NEEDLE
company to the assets of the
S
business. (LO5)
The owners right to the assets of WARREN
(6)
the business. (12, 51)
The amount by which the business COLLEGE
(8)
assets
exceed
the
business
liabilities.
The claim of a companys owners to HORNGREN(
5)
the assets of the business. For a
corporation, owners equity is called
shareholders or stockholders
equity.
The ownership interest inthe net ALBRECH
T(9)
assets of an entity; equals total
assets minus total liabilities.
Another term for owners equity, the COLLEGE

(20)
NET ASSETS

CAPITAL (20)

EQUITY (P. 11)

CAPITAL
STOCK

COMMON
STOCK (P. 12)

(8)
amount by which the business
assets
exceed
the
business
liabilities.
Assets minus liabilities; owners NEEDLE
equity. (LO5)
S
The owners equity of a business; ALBRECH
T(9)
equal to total assets minus total
liabilities.
Another term for owners equity, the COLLEGE
(8)
amount by which the business
assets
exceed
the
business
liabilities.
The claim of a companys owners to HORNGREN(
5)
the assets of the business. Also
called
owners
equity
for
propriertorships and partnerships
and called shareholders equity
or stockholders equity for a
corporation.
Owners claim on the assets of a WILD(4)
business;
equals
the
residual
interest in an entitys assets after
deducting liabilities; also called net
assets. (p. 14)
Particular
businesses
or
other EDMOND
(7)
organizations for which financial
statements are prepared. p. 6
The portion of stockholders equity ALBRECH
T(9)
that represents investment by
owners in exchange for shares of
stock. Also referred to as paid- in
capital.
Corporations
basic
ownership WILD(4)
share; also generically called capital
stock. (pp. 12 & 510)
Represents the basic ownership of HORNGREN(
5)
every corporation.
Basic class of corporate stock that EDMOND
(7)
carries no preferences as to claims

on assets or dividends; certificates


that evidence ownership in a
company. pp. 9, 294
CONTRIBUTED The
amount
invested
in
a HORNGREN(
5)
CAPITAL (P.
corporation by its owners, the
13)
stockholders. Also called paid- in
capital.
STOCKHOLDE The owners equity section of a ALBRECH
T(9)
RS EQUITY
corporate balance sheet.
The claim of a corporations owners HORNGREN(
5)
to the assets of the business. Also
called shareholders equity.
Stockholders equity represents the EDMOND
(7)
portion of the assets that is owned
by
the
stockholders. p. 9
SHAREHOLDE The claim of a corporations owners HORNGREN(
5)
RS EQUITY (P. to the assets of the business. Also
11)
called stockholders equity.
PAID- IN
The
amount
invested
in
a HORNGREN(
5)
CAPITAL (P.
corporation by its owners, the
13)
stockholders.
Also
called
contributed capital.
INVESTMENTS
BY OWNER
OWNER
INVESTMENT
(P. 14)
INVESTORS 7

The assets an owner puts into the


business. (p. 13).
Assets put into the business by the
owner. (p. 14)

DRAWINGS

Withdrawal of cash or other assets


from an unincorporated business for
the personal use of the owner(s). (p.

KIESO
WILD(4)

Company or individual who gives EDMOND


(7)
assets or services in exchange for
security certificates representing
ownership interests. p. 7
KIESO

13).
Withdrawals that reduce owners COLLEGE
(8)
equity as a result of the owner
taking cash or other assets out of
the business for personal use.
Distributions of capital by a HORNGREN(
5)
company to its owner.
Reduce owners equity as a result of COLLEGE
(8)
the owner taking cash or other
assets out of the business for
personal use.
Payment of cash or other assets WILD(4)
from a proprietorship or partnership
to its owner or owners. (p. 14)
REVENUES

The gross increase in owners equity


KIESO
resulting from business activities
entered into for the purpose of
earning income. (p. 13).
p. 10 Amounts earned when goods
PATRICA
or services are delivered to
customers.
Increases in owners equity that
NEEDLE
result from operating a business.
S
(LO5)
Increase in a companys resources ALBRECH
T(9)
from the sale of goods or services.
Increases in owners equity as a WARREN
(6)
result of selling services or products
to customers. (14, 51)
Amounts earned by delivering goods HORNGREN(
5)
or services to customers. Revenues
increase capital.
The economic benefit (increase in EDMOND
(7)
assets or decrease in liabilities)
gained by providing goods or
services to customers. pp. 11, 68
The economic benefit (increase in EDMOND

FEES EARNED
(15)
SALES (15)

RENT
REVENUE (15)
INTEREST
REVENUE (15)
EXPENSES

(7)
assets or decrease in liabilities)
gained by providing goods or
services to customers. pp. 11, 68
The amount a business charges COLLEGE
(8)
customers for products sold or
services performed.
Gross increase in equity from a WILD(4)
companys business activities that
earn income; also called sales. (p.
14)
Revenue from providing services. WARREN
(6)
(15)
The
total
amount
charged WARREN
(6)
customers for merchandise sold,
including cash sales and sales on
account. (15, 252)
WARREN
Money received for rent. (15)

Money received for interest. (15)

(6)
WARREN
(6)

The cost of assets consumed or


KIESO
services used in the process of
earning revenue. (p. 14).
p. 98 Dollar amount of resources an PATRICA
entity uses to earn revenues during
a period.
Decreases in owners equity that
NEEDLE
result from operating a business.
S
(LO5)
Costs incurred in the normal course ALBRECH
T(9)
of business to generate revenues.
Assets used up or services WARREN
(6)
consumed in the process of
generating revenues. (15, 51)
The decrease in assets (or increase COLLEGE
(8)
in liabilities) as a result of efforts to
produce revenues.

Decrease in equity that occurs from HORNGREN(


5)
using assets or increasing liabilities
in the course of delivering goods or
services to customers.
Outflows or using up of assets as WILD(4)
part of operations of a business to
generate sales. (p. 14)
Economic sacrifices (decreases in EDMOND
(7)
assets or increase in liabilities) that
are incurred in the process of
generating revenue. pp. 11, 49, 68
Economic sacrifices (decreases in EDMOND
(7)
assets or increase in liabilities) that
are incurred in the process of
generating revenue. pp. 11, 49, 68
BOOK VALUE
MARKET
VALUE

The value of a company as


measured by the amount of owners
equity; that is, assets less liabilities.
The value of a company as
measured by the number of shares
of stock outstanding multiplied by
the current market price of the
stock; the current value of a
business.

ALBRECH
T(9)
ALBRECH
T(9)

USING THE ACCOUNTING EQUATION


TRANSACTION
S
EXTERNAL
TRANSACTION
S (P. 15)
INTERNAL
TRANSACTION
S (P. 15)

The economic events of a business


that
are
recorded by accountants. (p. 14).
Exchanges
of
economic
value
between one entity and another
entity. (p. 15)
Activities within an organization that
can affect the accounting equation.
(p. 15)

KIESO
WILD(4)

WILD(4)

ARMSLENGTH
TRANSACTION
S

Business
dealings
between
independent and rational parties
who are looking out for their own
interests.

ALBRECH
T(9)

FINANCIAL STATEMENTS
FINANCIAL
STATEMENTS

COMPARATIVE
FINANCIAL
STATEMENTS
ANNUAL
REPORT

The
primary
means
of NEEDLE
communicating
important
S
accounting information to users.
They include the income statement,
statement
of
owners
equity,
balance sheet, and statement of
cash flows. (LO1)
Reports such as the balance sheet, ALBRECH
T(9)
income statement, and statement of
cash flows, which summarize the
financial status and results of
operations of a business entity.
Financial reports that summarize the WARREN
(6)
effects of events on a business. (17)
Documents that report on a HORNGREN(
5)
business in monetary amounts,
providing information to help people
make informed business decisions.
Primary means of communicating EDMOND
(7)
the financial information of an
organization to the external users.
The four general- purpose financial
statements
are
the
income
statement, statement of changes in
equity,
balance
sheet,
and
statement of cash flows. p. 6
Financial statements in which data ALBRECH
T(9)
for two or more years are shown
together.
A document that summarizes the ALBRECH
T(9)
results of operations and financial
status of a company for the past

year and outlines plans for the


future.
Document in which an organization
provides
information
to
stockholders, usually on an annual
basis. p. 21
PRIMARY
The balance sheet, income
FINANCIAL
statement, and statement of cash
STATEMENTS
flows, used by external groups to
assess a companys economic
standing.
NOTES
p.
18
Additional
information
provided to accompany the basic
financial statements to assist users
in understanding amounts reported
on the financial statements or other
items
that
may
affect
their
decisions.
ARTICULATION Characteristic
of
financial
14
statements that means they are
interrelated.
For
example,
the
amount of net income reported on
the income statement is added to
beginning retained earnings as a
component in calculating the ending
retained earnings balance reported
on the statement of changes in
stockholders equity. p. 14
ELEMENTS 6
Primary components of financial
statements
including
assets,
liabilities,
equity,
contributions,
revenue, expenses, distributions,
and net income. p. 6
REPORTING
Particular
businesses
or
other
ENTITIES 6
organizations for which financial
statements are prepared. p. 6
RECOGNITION Reporting an accounting event in
42
the financial statements. p. 42
PUBLIC
Following
the
issuance
of
a

EDMOND
(7)

ALBRECH
T(9)

PATRICA

EDMOND
(7)

EDMOND
(7)

EDMOND
(7)
EDMOND
(7)
COLLEGE

HEARING (5)

discussion memorandum, public


meetings are often held by FASB to
gather opinions on the accounting
issue.

INCOME
STATEMENT

Financial statement that presents


KIESO
the revenues and expenses and
resulting net income or net loss of a
company for a specific period of
time. (p. 21).
p. 14 Financial statement that PATRICA
reports the performance of a
business for a period of time.
A
financial
statement
that NEEDLE
summarizes the revenues earned
S
and expenses incurred by a
business over an accounting period.
(LO6)
A summary of the revenue and WARREN
(6)
expenses for a specific period of
time, such as a month or a year.
(18)
Reports the profitability of business COLLEGE
(8)
operations for a specific period of
time.
Financial statement that subtracts WILD(4)
expenses from revenues to yield a
net income or loss over a specified
period of time; also includes any
gains or losses. (p. 19)
Summary of an entitys revenues, HORNGREN(
5)
expenses, and net income or net
loss for a specific period. Also called
the statement of earnings or the
statement of operations.
The financial statement that reports ALBRECH
T(9)
the amount of net income earned by
a company during a period.

(8)

OPERATING
STATEMENT
(33)
STATEMENT
OF EARNINGS
(P. 21)
STATEMENT
OF
OPERATIONS
(P. 21)
PROFIT AND
LOSS
STATEMENT
(33)
NET INCOME

Statement
that
measures
the
difference
between
the
asset
increases and the asset decreases
associated with running a business.
This definition is expanded in
subsequent chapters as additional
relationships among the elements of
the
financial
statements
are
introduced. p. 14
Another name for the income
statement,
which
reports
the
profitability of business operations
for a specific period of time.
Summary of an entitys revenues,
expenses, and net income or net
loss for a specific period. Also called
the income statement or the
statement of operations.
Summary of an entitys revenues,
expenses, and net income or net
loss for a specific period. Also called
the
income
statement
or
statement of earnings.
Another name for the income
statement,
which
reports
the
profitability of business operations
for a specific period of time.
The amount by which revenues
exceed expenses. (p. 23).
p. 15 Positive difference between
revenues earned during a period
and the expenses that were incurred
to generate the revenues during the
period.
The difference between revenues
and expenses when revenues
exceed expenses. (LO5)
The excess of total revenues over
total expenses for the period.

EDMOND
(7)

COLLEGE
(8)

HORNGREN(
5)

HORNGREN(
5)

COLLEGE
(8)

KIESO
PATRICA

NEEDLE
S
COLLEGE
(8)

NET LOSS

OWNERS
EQUITY
STATEMENT

An
overall
measure
of
the
performance of a company; equal to
revenues minus expenses for the
period.
Excess of total revenues over total
expenses. Also called net earnings
or net profit.
Amount earned after subtracting all
expenses
necessary
for
and
matched with sales for a period;
also called income, profit, or
earnings. (p. 14)
Increase in net assets resulting from
operating the business. p. 16
The amount by which revenues
exceed expenses. (18)
The amount by which expenses
exceed
revenues.
(p. 23).
p. 16 Result when expenses exceed
revenues during a period.
The difference between expenses
and revenues when expenses
exceed revenues. (LO5)
The amount by which expenses
exceed revenues. (18)
The excess of total expenses over
total revenues for the period.
Excess of total expenses over total
revenues.
Excess of expenses over revenues
for a period. (p. 14)
Decrease in net assets resulting
from operating the business. p. 16
A
financial
statement
that
summarizes the changes in owners
equity for a specific period of time.

ALBRECH
T(9)

HORNGREN(
5)

WILD(4)

EDMOND
(7)
WARREN
(6)

KIESO
PATRICA
NEEDLE
S
WARREN
(6)
COLLEGE
(8)
HORNGREN(
5)

WILD(4)

EDMOND
(7)

KIESO

(p. 21).
p. 16 Financial statement that PATRICA
reports the changes in owners
equity during the period.
A financial statement that shows the NEEDLE
changes in owners equity over an
S
accounting period. (LO6)
A summary of the changes in WARREN
(6)
owners equity that have occurred
during a specific period of time,
such as a month or a year. (18)
Reports beginning capital plus net COLLEGE
(8)
income less withdrawals to compute
ending capital.
Report of changes in equity over a WILD(4)
period;
adjusted
for
increases
(owner investment and net income)
and for decreases (withdrawals and
net loss). (p. 19)
Summary of the changes in an HORNGREN(
5)
owners capital account during a
specific period.
Statement that summarizes the EDMOND
(7)
transactions occurring during the
accounting period that affected the
owners equity. p. 16

STATEMENT
OF CHANGES
IN
STOCKHOLDE
RS EQUITY 16
DIVIDEND 12
Transfer of wealth from a business EDMOND
(7)
to its owners. p. 12
Distributions
to
the
owners ALBRECH
T(9)
(stockholders) of a corporation.
EARNINGS
The
amount
of
net
income ALBRECH
T(9)
(LOSS) PER
(earnings) related to each share of
SHARE (EPS)
stock; computed by dividing net
income by the number of shares of
stock outstanding during the period.
RETAINED

The

amount

of

accumulated

ALBRECH

EARNINGS

STATEMENT
OF RETAINED
EARNINGS
BALANCE
SHEET

T(9)
earnings of the business that have
not been distributed to owners.
The amount earned over the life of a HORNGREN(
5)
business by income- producing
activities and kept (retained) for use
in the business.
Portion of stockholders equity that EDMOND
(7)
includes all earnings retained in the
business since inception (revenues
minus expenses and distributions
for all accounting periods). p. 9
A report that shows the changes in ALBRECH
T(9)
retained earnings during a period of
time.

A financial statement that reports


KIESO
the assets, liabilities, and owners
equity at a specific date. (p. 21).
p. 51 Financial statement that
PATRICA
reports the amount of a businesss
assets, liabilities, and owners equity
at a specific point in time.
The financial statement that shows
NEEDLE
a businesss assets, liabilities, and
S
owners equity as of a specific date.
Also called the statement of
financial
position. (LO6)
A list of the assets, liabilities, and WARREN
(6)
owners equity as of a specific date,
usually at the close of the last day
of a month or a year. (18)
Reports assets,
liabilities,
and COLLEGE
(8)
owners equity on a specific date. It
is called a balance sheet because it
confirms
that
the
accounting
equation is in balance.
Financial statement that lists types WILD(4)

FINANCIAL
POSITION
STATEMENT
OF FINANCIAL
POSITION (34)

STATEMENT
OF FINANCIAL
CONDITION
(34)
ACCOUNT
FORM (21)

and dollar amounts of assets,


liabilities, and equity at a specific
date. (p. 19)
An entitys assets, liabilities, and HORNGREN(
5)
owners equity as of a specific date.
Also called the statement of
financial position.
The financial statement that reports ALBRECH
T(9)
a companys assets, liabilities, and
owners equity at a particular date.
Statement that lists the assets of a EDMOND
(7)
business and the corresponding
claims (liabilities and equity) on
those assets. p. 17
The economic resources that belong NEEDLE
to a company and the claims
S
(equities) against those resources at
a particular time. (LO5)
Another name for the balance sheet, COLLEGE
(8)
which reports assets, liabilities, and
owners equity on a specific date.
An entitys assets, liabilities, and HORNGREN(
5)
owners equity as of a specific date.
Also called the balance sheet.
Another name for the balance sheet, COLLEGE
(8)
which reports assets, liabilities, and
owners equity on a specific date.

The form of balance sheet that


resembles the basic format of the
accounting equation, with assets on
the left side and the liabilities and
owners equity sections on the right
side. (21, 257)
REPORT FORM The form of balance sheet with the
(21)
liabilities
and
owners
equity
sections presented below the assets
section. (21, 257)
CLASSIFIED
A balance sheet in which assets and

WARREN
(6)

WARREN
(6)

ALBRECH

BALANCE
SHEET

liabilities are subdivided into current


and long- term categories.

CASH FLOWS

The inflows and outflows of cash NEEDLE


into and out of a business. (LO6)
S
A
financial
statement
that
KIESO
summarizes information about the
cash inflows (receipts) and cash
outflows (payments) for a specific
period of time. (p. 21).
p. 18 Financial statement that PATRICA
reports the businesss cash inflows
(receipts) and outflows (payments)
by business activity (operating,
investing, and financing) for a
period of time.
A financial statement that shows the NEEDLE
inflows and outflows of cash from
S
operating
activities,
investing
activities, and financing activities
over an accounting period. (LO6)
The financial statement that reports ALBRECH
T(9)
the amount of cash collected and
paid out by a company during a
period of time.
A summary of the cash receipts and WARREN
(6)
cash payments for a specific period
of time, such as a month or a year.
(18, 692)
A financial statement that lists cash WILD(4)
inflows (receipts) and cash outflows
(payments)
during
a
period;
arranged by operating, investing,
and financing. (pp. 19 & 632)
Report of cash receipts and cash HORNGREN(
5)
payments
during
a
period.

STATEMENT
OF CASH
FLOWS

Statement

that

explains

how

T(9)

a EDMOND

OPERATING
ACTIVITIES

INVESTING
ACTIVITIES

FINANCING
ACTIVITIES

business obtained and used cash


during an accounting period. p. 17
p. 18 Business activities directly
related to earning profits.
Activities
undertaken
by
management in the course of
running a business. (LO1)
Activities that are part of the dayto- day business of a company.
Cash
inflows
and
outflows
associated
with
operating
the
business. These cash flows normally
result from revenue and expense
transactions including interest. p. 17
p. 18 Business activities involving
buying
and
selling
productive
resources with long lives.
Activities
undertaken
by
management to spend capital in
productive ways that will help a
business achieve its objectives.
(LO1)
Activities associated with buying
and selling long- term assets.
One of the three categories of cash
inflows and outflows shown on the
statement of cash flows; includes
cash received and spent by the
business on productive assets and
investments in the debt and equity
of other companies. p. 17
p. 18 Business activities involving
borrowing from banks, repaying
bank loans, receiving investments
from owners, and distributing profits
to owners (through withdrawals for
proprietors and partnerships and
through dividends to stock holders).
Activities
undertaken
by

(7)

PATRICA
NEEDLE
S
ALBRECH
T(9)

EDMOND
(7)

PATRICA
NEEDLE
S

ALBRECH
T(9)

EDMOND
(7)

PATRICA

NEEDLE

management to obtain adequate


S
funds to begin and to continue
operating a business. (LO1)
Activities whereby cash is obtained ALBRECH
T(9)
from or repaid to owners and
creditors.
Cash inflows and outflows from EDMOND
(7)
transactions with investors and
creditors (except interest). These
cash flows include cash receipts
from the issue of stock, borrowing
activities, and cash disbursements
associated with dividends. p. 17
ACCOUNTING
CYCLE

The
procedure
for
analyzing, ALBRECH
recording, classifying, summarizing, T(9)
and reporting the transactions of a
business.

DOUBLEENTRY
ACCOUNTING
DOUBLEENTRY
BOOKKEEPING
10

A system of recording transactions ALBRECH


in a way that maintains the equality T(9)
of the accounting equation.
Method of keeping records that EDMOND
(7)
provides a system of checks and
balances by recording transactions
in a dual format. p. 10

DEFERRAL 43

Recognition of revenue or expense


in a period after the cash is
exchanged. p. 43
Recognition
of
events
before
exchanging cash. p. 44
Accounting system that recognizes
expenses or revenues when they
occur regardless of when cash is
exchanged. p. 43
Expenses that are recognized

ACCRUAL 43
ACCRUAL
ACCOUNTING
43
ACCRUED

EDMOND
(7)
EDMOND
(7)
EDMOND
(7)

EDMOND

EXPENSES 46
UNEARNED
REVENUE 53
PREPAID
ITEMS 52
PREPAID
EXPENSES
(14)

ACCOUNT (22)

ACCOUNT
TITLE (22)
TEMPORARY
ACCOUNTS 18
PERMANENT
ACCOUNTS 19
CLOSING

ADJUSTING
ENTRY 46

(7)
before cash is paid. An example is
accrued salaries expense. p. 46
Revenue for which cash has been EDMOND
(7)
collected but the service has not
yet been performed. p. 53
Deferred expenses. An example is EDMOND
(7)
prepaid insurance. p. 52
Items such as supplies that will be WARREN(
6)
used in the business in the future.
Also see deferred expenses. (14,
106)

A
separate
record
used
to
summarize changes in each asset,
liability, and owners equity of a
business.
Records used for classifying and
summarizing transaction data; subclassifications of financial statement
elements. p. 7
Provides a description of the
particular type of asset, liability,
owners
equity,
revenue,
or
expense.
Accounts used to collect information
for a single accounting period
(usually revenue, expense, and
distribution accounts). p. 18
Accounts that contain information
transferred from one accounting
period to the next. p. 19
Process of transferring balances
from temporary accounts (Revenue,
Expense, and Dividends) to the
permanent
account
(Retained
Earnings). p. 18
Entry
that
updates
account
balances prior to preparing financial

COLLEGE
(8)

EDMOND
(7)

COLLEGE
(8)

EDMOND
(7)

EDMOND
(7)
EDMOND
(7)

EDMOND
(7)

statements. pp. 46, 182


OWNER,
CAPITAL (P. 14)

OWNER
WITHDRAWAL
S (P. 14)
PROFIT (2)

Account showing the owners claim


on company assets; equals owner
investments plus net income (or
less net losses) minus owner
withdrawals since the companys
inception; also referred to as equity.
(p. 14)
Account used to record asset
distributions to the owner. (See also
withdrawals.) (p. 14)

The
difference
between
the
amounts received from customers
for goods or services provided and
the amounts paid for the inputs
used to provide the goods or
services. (2)
GAINS
Money made or lost on activities
(LOSSES)
outside the normal operation of a
company.
RETURN (P. 26)
Monies
received
from
an
investment; often in percent form.
(p. 26)
INTEREST 7
Fee paid for the use of borrowed
funds; also refers to revenue from
debt securities. pp. 7, 181
PERIOD COSTS General, selling, and administrative
51
costs that are expensed in the
period in which the economic
sacrifice is made. pp. 93, 51, 371
GROSS PROFIT The excess of net sales revenue
(GROSS
over the cost of goods sold.
MARGIN)
GENERAL

WILD(4)

WILD(4)

WARREN(
6)

ALBRECH
T(9)
WILD(4)

EDMOND
(7)
EDMOND
(7)

ALBRECH
T(9)

Complete set of accounts used in EDMOND

LEDGER 13

accounting systems. p. 13

INTERNAL
USERS (P. 6)

Persons
using
accounting
information
who
are
directly
involved
in
managing
the
organization. (p. 6)
Persons
using
accounting
information who are not directly
involved
in
running
the
organization. (p. 5)

EXTERNAL
USERS (P. 5)

(7)
WILD(4)

WILD(4)

LIQUIDATION 7 Process of dividing up the assets EDMOND


(7)
and returning them to the resource
providers.
Creditors
normally
receive first priority in business
liquidations; in other words, assets
are distributed to creditors first.
After creditor claims have been
satisfied, the remaining assets are
distributed to the investors (owners)
of the business. p. 7
MANAGEMENT

The people who have overall


responsibility
for
operating
a
business and meeting its goals.
(LO2)
ORGANIZATION
Lines
of
authority
and
AL STRUCTURE responsibility.
MANAGEMENT The interconnected subsystems
INFORMATION that
provide
the
information
SYSTEM (MIS)
needed to run a business. (LO1)
PERFORMANCE Indicators of whether managers are
MEASURES
achieving business goals and
whether business activities are well
managed. (LO1)

NEEDLE
S
ALBRECH
T(9)

NEEDLE
S
NEEDLE
S

BUDGETING
(10)

The process in which accountants COLLEGE


(8)
help managers develop a financial
plan.

COMPREHENSI
VE INCOME

A measure of the overall change in ALBRECH


a companys wealth during a T(9)
period; consists of net income plus
changes in wealth resulting from
changes in investment values and
exchange rates.

CONCEPTUAL
FRAMEWORK
(P. 9)

A written framework to guide the


development,
preparation,
and
interpretation
of
financial
accounting information. (p. 9)

CONTROL
ACTIVITIES
(PROCEDURES
)
CONTROL
ENVIRONMENT

Policies and procedures used by ALBRECH


management
to
meet
their T(9)
objectives.

The
actions,
policies,
and
procedures that reflect the overall
attitudes of top management about
control and its importance to the
entity.
DETECTIVE
Internal control activities that are
CONTROLS
designed to detect the occurrence
of errors and fraud.
PREVENTATIVE Internal control activities that are
CONTROLS
designed to prevent the occurrence
of errors and fraud.
INTERNAL
Safeguards in the form of policies
CONTROL
and procedures established to
STRUCTURE
provide management with reason
able assurance that the objectives
of an entity will be achieved.

WILD(4)

ALBRECH
T(9)

ALBRECH
T(9)
ALBRECH
T(9)
ALBRECH
T(9)

COST- BENEFIT Notion that only information with


CONSTRAINT
benefits of disclosure greater than
(P. 12)
the costs of disclosure need be
disclosed. (p. 12)
HORIZONTAL
STATEMENTS
MODEL 19
INCOME 7
INCOME
SMOOTHING

INDEPENDENT
CHECKS

Arrangement of a set of financial


statements horizontally across a
sheet of paper. p. 19
Added
value
created
in
transforming resources into more
desirable states. p. 7
The practice of carefully timing the
recognition
of
revenues
and
expenses to even out the amount of
reported earnings from one year to
the next.
Procedures for continual internal
verification of other controls.

WILD(4)

EDMOND
(7)
EDMOND
(7)
ALBRECH
T(9)

ALBRECH
T(9)

INTERNAL
EARNINGS
TARGETS

Financial goals established within a ALBRECH


T(9)
company.

MATERIALITY
CONSTRAINT
(P. 12)

Prescribes that accounting for items


that significantly impact financial
statement and any inferences from
them adhere strictly to GAAP. (pp.
12 & 364)

OPPORTUNITY
67

An element of the fraud triangle EDMOND


(7)
that recognizes weaknesses in
internal controls that enable the
occurrence
of
fraudulent
or
unethical behavior. p. 67

WILD(4)

PHYSICAL
SAFEGUARDS

Physical precautions used to protect ALBRECH


assets and records, such as locks on T(9)
doors, fireproof vaults, password
verification, and security guards.

REALIZATION
42

A term that usually refers


actually collecting cash. p. 42

RISK (P. 26)

Uncertainty about an expected


return. (p. 26)

SEGREGATION
OF DUTIES

A strategy to provide an internal ALBRECH


check on performance through T(9)
separation of authorization of trans
actions from custody of related
assets, separation of operational
responsibilities from record- keeping
responsibilities, and separation of
custody of assets from accounting
personnel.

VERTICAL
STATEMENTS
MODEL 61

Arrangement of a full set of EDMOND


(7)
financial statements on a single
page with account titles arranged
from the top to the bottom of the
page. p. 61

EXCHANGE
RATE

The value of one currency in terms


of another. (LO3)

NEEDLE
S

FRAUDULENT
FINANCIAL
REPORTING

The intentional preparation of


misleading financial statements.
(LO1)

NEEDLE
S

INDEPENDENC

The avoidance of all relationships

NEEDLE

to EDMOND
(7)

WILD(4)

that impair or appear to impair an


accountants objectivity. (LO7)

INTEGRITY

Honesty,
candidness,
and
the
subordination of personal gain to
service and the public trust. (LO7)

NEEDLE
S

LIQUIDITY

Having enough cash available to NEEDLE


pay debts when they are due. (LO1)
S
The ability of a company to pay its ALBRECH
T(9)
debts in the short run.
A measure of the ease with which COLLEGE
(8)
an asset will be converted to cash.
Ability to convert assets to cash EDMOND
(7)
quickly and meet short- term
obligations. pp. 17, 183, 267

PROFITABILIT
Y

The ability to earn enough income


to attract and hold investment
capital. (LO1)

NEEDLE
S

MONEY
MEASURE

The recording of all business


transactions in terms of money.
(LO3)

NEEDLE
S

OBJECTIVITY

Impartiality and intellectual honesty.


(LO7)

NEEDLE
S