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Accounting Terms - Vocabulary - Notes

By Carl Thomas,2014-12-27 01:44
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Accounting Terms - Vocabulary - Notes

    Accounting Terms, Vocabulary, and Notes

    Module 1

    Accounting - a tool that lets interested parties get the information they need from the

    mountain of raw data (I-1-1)

    - a system for developing and communicating information needed for

    economic decision-making (I-1-2)

Assets things of value (I-1-3)

    - resources (I-1-5)

    - probable future economic benefits obtained as a result of past

    transactions or events (I-1-14)

    - expected to benefit an entity in the future

    - examples: cash, land, inventory, patents, buildings, equipment

Liabilities debts owed (I-1-3)

    - obligations (I-1-5)

    - probable future sacrifices of economic benefits arising from present

    obligations of an entity to transfer assets or provide services to other

    entities

    - debts owed in either money or other assets or via services

    - examples: wages payable, mortgage notes payable, warranties payable

    Information which has been verified is considered more reliable, and therefore more

    valuable, than unverified information.

    Accounting information is a basic social need

    Accounting tools are developed to fill those human information needs and accounting

    evolves over time as human information needs change.

    As accounting information systems evolve, like all human tools, they improve. Computer records are replacing paper records.

Inventory goods being held for sale (I-1-11)

    Stock-outs where customers are ready to buy, but no goods are ready to be sold

Excess inventory where too many perishable goods are left over and can’t be sold

Every economic transaction has 2 sides.

     Examples: lender/borrower, seller/purchaser, employer/employee, receiver/sender

Note receivable the borrower’s promise to repay the debt with interest

    Note payable borrower gains cash, but must give up future resources to repay the

    debt plus interest

Duality all transactions have 2 sides

Owners’ Equity ownership interests (I-1-13)

    - residual interest in the assets of an entity that remains after deducting its

    liabilities

    - what is owned

    - examples: common stock, retained earnings

    Business enterprises entities established with an objective of earning profits

Revenue inflows of assets of an entity of its liabilities

    - inflows of new resources that come from doing business

    - examples: sales revenues, rent revenues

Gains increases in equity or “net assets”

    - arise from activities other than normal business operations or events that

    are not within the control of the business at all

    - examples: gain on sale of equipment, gain on settlement of lawsuit

Losses decrease in equity or net assets

    - examples: loss on sale of equipment, earthquake loss, fire loss,

    loss on settlement of lawsuit

Net assets = assets liabilities

    Expenses outflows or other use of assets as a result of delivering or producing goods,

    rendering services, or carrying out other activities that constitute the entity’s

    major operations

    - the costs incurred by an entity in order to produce revenues

    - examples: wages expense, utilities expense, cost of goods sold

    Net income the difference which results from adding all revenues and gains and

    subtracting all expenses and losses

    - the “bottom line” – the profit (if net income is positive) or loss(if net

    income is negative)

    Comprehensive income the change in equity (net assets) of a business enterprise

    from transactions and other events and circumstances from nonowner sources

    - a single figure that encompasses all changes in net assets.

    - The total of net income plus any other nonowner changes in equity

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