Chapter 1

The information system that identifies, records, and communicates the economics events of an organization to interested users. (p. 6)

A report prepared by corporate management that presents financial information including financial statements, notes, a management discussion analysis section, and an independant auditor's report. (p. 21)

Resources owned by a business. (p. 10)

A report prepared by an independant outside auditor stating the auditor's opinion to the fairness of the presentation of the financial position and results of operations and their conformance with generally acceptable accounting principles. (p. 22)

A financial statement that reports the assets and claims to those assets at a specific point in time. (p. 14)

Assets = Liabities + Owner's (Stockholders') Equity (p. 14)

An individual who has met certain criteria and is thus allowed to perform audits of corporations. (p. 23)

Term used to describe the total amount paid by stockholders for the shares they purchase. (p. 10)

A presentation of the financial statements of a company for more than one year. (p. 19)

A business organized as a seperate legal entity having ownership divided into transferrable shares of stock. (p. 4)

Payments of cash from a corporation to its stockholders. (p. 10)

The cost of assets consumed or services used in the process of generating revenue. (p. 11)

A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time. (p. 12)

The debts and obligations of a business. Liabilities represents the amounts owed to creditors. (p. 10)

A section of the annual report that presents management's view on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operation. (p. 22)

The amount by which revenues exceed expenses. (p. 11)

The amount by which expenses exceed revenues. (p. 11)

Notes that clarify information presented in the financial statements, as well as expand upon it where additional detail is needed. (p. 22.)

A business owned by two or persons associated as partners. (p. 4)

The amount of net income retained in the corporation. (p. 13)

A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific period of time. (p. 13)

The increase in assets that result from the sale of a product or service in the normal course of business. (p. 11)

Regulations passed by congress in 2002 to try to reduce unethical comporate behavior. (p. 9)

A business owned by one person. (p. 4)

A financial statement that provides financial informationabout the cash receipts and cash payments of a business for a specific period of time. (p. 15)

The owners' claim on total assets. (p. 14)

• Income Statement
• Statement of retained earnings
• Balance sheet
• statements of cash flows

• return on investment
• Return= Net income /average total assets

• Transaction analysis
• Financial Statements

language of business

• Goal of accounting is to provide useful info for decision making
• For information to be useful it must be trusted

• Financing
• investing
• operating

owner's claim on assets

refers to income

• is incertainty about the return we hope to make
• all investments involve risks
• the lower the risk of an investment, the lower is its expected return. vice versa

• is an exchange of econ. consideration between two parties
• Ex. exchanges of products, service, money and rights to collect money

Generally Accepted Accounting Principles