Accounting "An information system that measures, processes, and communicates financial information about an identifiable economic entity."

Accounting equation "Assets = Liabilities + Owners’ Equity or, for corporations, Assets = Liabilities + Stockholders’ Equity."

Accounts The labels used by accountants to accumulate the amounts produced from similar transactions.

American Institute of Certified Public Accountants (AICPA) The professional association of certified public accountants.

Articles of incorporation An official document filed with and approved by a state that authorizes the incorporators to do business as a corporation.

Assets Economic resources owned by a business that are expected to benefit future operations.

Audit "An examination of a company’s financial statements in order to render an independent professional opinion that they have been presented fairly, in all material respects, in conformity with generally accepted accounting principles."

Audit committee A subgroup of the board of directors of a corporation that is charged with ensuring that the board will be objective in reviewing management’s performance; it engages the company’s independent auditors and reviews their work.






Balance sheet "The financial statement that shows the assets, liabilities, and stockholders’ equity of a business at a point in time. Also called a statement of financial position."

Bookkeeping The process of recording financial transactions and keeping financial records.

Business An economic unit that aims to sell goods and services to customers at prices that will provide an adequate return to its owners.

Business transactions Economic events that affect the financial position of a business entity.






Cash flows The inflows and outflows of cash into and out of a business.

Certified public accountants (CPAs) Public accountants who have met the stringent state licensing requirements.

Computer "An electronic tool for the rapid collection, organization, and communication of large amounts of information."

Contributed capital The part of stockholders’ equity that represents the amount invested in the business by the owners (stockholders).

Corporation "A business unit granted a state charter recognizing it as a separate legal entity having its own rights, privileges, and liabilities distinct from those of its owners."






Dividends Distributions to stockholders of assets (usually cash) generated by past earnings.

Due care Competence and diligence in carrying out professional responsibilities.






Ethics A code of conduct that addresses whether everyday actions are right or wrong.

Exchange rate The value of one currency in terms of another.

Expenses Decreases in stockholders’ equity that result from operating a business.






Financial accounting The process of generating and communicating accounting information in the form of financial statements to those outside the organization.

Financial Accounting Standards Board (FASB) "The most important body for developing and issuing rules on accounting practice, called Statements of Financial Accounting Standards."

Financial position The economic resources that belong to a company and the claims (equities) against those resources at a point in time.

Financial statements "The primary means of communicating important accounting information to users. They include the income statement, statement of retained earnings, balance sheet, and statement of cash flows."

Financing activities Activities undertaken by management to obtain adequate funds to begin and to continue operating a business.






Generally accepted accounting principles (GAAP) "The conventions, rules, and procedures that define accepted accounting practice at a particular time."

Governmental Accounting Standards Board (GASB) The board responsible for issuing accounting standards for state and local governments.






Income statement The financial statement that summarizes the revenues earned and expenses incurred by a business over a period of time.

Independence The avoidance of all relationships that impair or appear to impair an accountant’s objectivity.

Institute of Management Accountants (IMA) A professional organization made up primarily of management accountants.

Integrity "Honesty, candidness, and the subordination of personal gain to service and the public trust."

Internal Revenue Service (IRS) The federal agency that interprets and enforces the tax laws governing the assessment and collection of revenue for operating the national government.

International Accounting Standards Board (IASB) The organization that encourages worldwide cooperation in the development of accounting principles; it has approved more than 30 international standards of accounting.

Investing activities Activities undertaken by management to spend capital in ways that are productive and will help a business achieve its objectives.






Liabilities "Present obligations of a business to pay cash, transfer assets, or provide services to other entities in the future."

Liquidity Having enough cash available to pay debts when they are due.






Management The people who have overall responsibility for operating a business and meeting its goals.

Management accounting The process of producing accounting information for the internal use of a company’s management.

Management information system (MIS) The interconnected subsystems that provide the information needed to run a business.

Money measure The recording of all business transactions in terms of money.






Net assets Assets minus liabilities; owners’ equity or stockholders’ equity.

Net income The difference between revenues and expenses when revenues exceed expenses.

Net loss The difference between expenses and revenues when expenses exceed revenues.






Objectivity Impartiality and intellectual honesty.

Operating activities Activities undertaken by management in the course of running the business.

Owners’ equity "The residual interest in the assets of a business entity that remains after deducting the entity’s liabilities. Also called residual equity or, for corporations, stockholders’ equity."






Partnership A business that is owned by two or more people and is not incorporated.

Performance measures Indicators of whether managers are achieving business goals and whether the business activities are well managed.

Professional ethics A code of conduct that applies to the practice of a profession.

Profitability The ability to earn enough income to attract and hold investment capital.






Retained earnings The equity of the stockholders generated from the income-producing activities of the business and kept for use in the business.

Revenues Increases in stockholders’ equity that result from operating a business.






Securities and Exchange Commission (SEC) "An agency of the U.S. government set up by Congress to protect the public by regulating the issuing, buying, and selling of stocks. It has the legal power to set and enforce accounting practices for firms whose securities are sold to the general public."

Separate entity "A business that is treated as distinct from its creditors, customers, and owners."

Share of stock A unit of ownership in a corporation.

Sole proprietorship A business that is owned by one person and is not incorporated.

Statement of cash flows "The financial statement that shows the inflows and outflows of cash from operating activities, investing activities, and financing activities over a period of time."

Statement of retained earnings The financial statement that shows the changes in retained earnings over a period of time.

Statement of stockholders’ equity A financial statement that summarizes changes in the components of stockholders’ equity. Also called statement of shareholders’ equity.

Stockholders’ equity "The owners’ equity of a corporation, consisting of contributed capital and retained earnings."