Business Entity
The accounting assumption that a business exists independently of its owner’s personal holdings. The accounting records and reports are maintained separately and contain financial information related only to the business.
Capital
Money supplied by investors, banks, or owners of a business
Charter
The legal permission, granted by a state, that gives a corporation certain rights and privileges and spells out the rules under which the corporation is to operate.
Corporation
A business organization recognized by law to have a life of its own.
Entrepreneur
A person who transforms ideas for products or services into real-world businesses.
For-Profit business
A business that operates to earn a profit for its owners.
Free Enterprise System
A system in which individuals are free to produce the goods and services they choose.
Going Concern
The accounting assumption that a business is expected to survive and operate indefinitely.
Loss
The result when a business spends more money than it earns.
Manufacturing Business
A business that buys raw materials, transforms them into finished products by using labor and machinery, and sells the finished products to individuals or other businesses.
Merchandising Business
A business that buys finished goods and resells them to individuals or other businesses.
Non-Profit business
An organization that operated for purposes other than making a profit.
Partnership
A business owned by two or more persons, called partners, who agree to operate the business as co-owners.
Profit
The amount of money earned above the amount of expense incurred to keep the business operating.
Service Business
A business that provides a needed service for a fee.
Sole Proprietorship
A business owned by one person.
Accountant
A person who handles a broad range of responsibilities, makes business decisions, and prepares and interprets financial reports
Accounting clerk
An entry-level job that can vary from specializing in one part of the system (i.e. Purchasing or Accounts Payable) to doing a wide range of tasks
Accounting Cycle
Activities performed in an accounting period that help the business keep its records in an orderly fashion
Accounting Period
The period of time covered by an accounting report
Accounting System
A system designed to collect, document, and report on business transactions
Audit
The review of a company’s accounting systems and financial statements to confirm that it follows generally accepted accounting principles
Calendar Year
Accounting period that begins on January 1 and ends on December 31
Certified Public Accountant CPA
A licensed professional who has met certain education and experience requirements and passed a national test
Computerized Accounting System
A type of accounting system in which information is recorded by entering it into a computer (aka Automated Accounting System)
Financial Accounting
Focuses on reporting information to external users—those not directly involved in the day-to-day operations of the business. (i.e. banks, investors, governmental taxing agencies, competitors)
Financial Reports
Documents that present summarized information about the financial status of a business. (i.e. Balance Sheets, Income Statements, Cash Flow Statements)
Fiscal Year
An accounting period of 12 consecutive months which CAN match the calendar year or not. Ex/ The State of North Carolina’s fiscal year begins on July 1 and ends the following June 30
GAAP
Generally Accepted Accounting Principles. All accountants follow the same accounting framework or set of rules to prepare financial reports.
Management Accounting
Focuses on reporting information to management and internal users of information who are involved in making day-to-day operating decisions like purchasing, hiring, production, sales and budgets.
Manual Accounting System
A type of accounting system in which information is processed largely by hand recording of transactions.
Acid-Test Ratio
Ratio of the sum of cash plus short-term investments plus net current receivables, to current liabilities.
Aging-Of-Accounts Method
A way to estimate bad debts by analyzing individual accounts receivable according to the length of time they have been receivable from the customer.
Allowance for Doubtful Accounts
A contra account, related to accounts receivable, that holds the estimated amount of collection losses.
Allowance for Uncollectible Accounts
Also called Allowance for Doubtful Accounts.
Allowance Method
A method of recording collection losses on the basis of estimates, instead of waiting to see which customers the company will not collect from.
Bad-Debt Expense
A company unable to collect from some customers, and that creates an expense.
Balance-Sheet Approach
An entity's assets, liabilities, and owner's equity as of a specific date.
Collection Period
Also called Days' Sales in Receivables.
Creditor
The party to a credit transaction who sells goods or a service and obtains a receivable.
Days' Sales In Receivable
Ratio of average net accounts receivable to one day's sales.
Default On A Note
Also called default on a note.
Direct Write-Off Method
A method of accounting for uncollectible receivables, in which the company waits until the credit department decides that a customer's account receivable is uncollectible.
Discounting A Note Receivable
Selling a note receivable before its maturity date.
Dishonor Of A Note
Failure of a note's maker to pay a note receivable at maturity.
Doubtful-Account Expense
Also called Bad-Debt Expense.
Due Date
The date when final payment of the note is due.
fiscal period
the length of time for which a business summarizes and reports financial information
