Balance sheetA list of the assets, liabilities, and stockholders’
equityas of a specific date, usually at the close of the last day of
a month, a quarter, or a year.Bonds payableA type of long-term debt financing with a
face amount that is due in the future with interest that is nor-
mally paid semiannually.BusinessAn organization in which basic resources (inputs),
such as materials and labor, are assembled and processed to
provide goods or services (outputs) to customers.Business entity conceptA concept of accounting that
limits the economic data in the accounting system to data
related directly to the activities of a specific business or entity.Business stakeholderA person or entity who has an in-
terest in the economic performance of a business.Capital stockTypes of stock a corporation may issue.Common stockThe basic type of stock issued to stock-
holders of a corporation.CorporationA business organized under state or federal
statutes as a separate legal entity.Cost conceptA concept of accounting that determines the
amount initially entered into the accounting records for
purchases.DividendsDistributions of earnings of a corporation to
stockholders.ExpensesCosts used to earn revenues.Financial Accounting Standards Board (FASB)The
authoritative body that has the primary responsibility for
developing accounting principles.Financial statementsFinancial reports that summarize
the effects of events on a business.Financing activitiesBusiness activities that involve ob-
taining funds to begin and operate a business.Generally accepted accounting principles (GAAP)Rules
for how financial statements should be prepared.Going concern conceptA concept of accounting that
assumes a business will continue operating for an indefinite
period of time.Gross profitSales less the cost of sales.Horizontal analysisA method of analyzing financial per-
formance that computes percentage increases and decreases
in related items in comparative financial statements.Income statementA summary of the revenue and ex-
pensesfor a specific period of time, such as a month or a year.Intangible assetsAssets that are rights to future benefits
such as patent or copyright rights.Interest payableA liability to pay interest on a due date.Investing activitiesBusiness activities that involve
obtaining the necessary resources to start and operate the
business.LiabilitiesThe rights of creditors that represent a legal obli-
gation to repay an amount borrowed according to terms of
the borrowing agreement.Limited liability company (LLC) A business form
consisting of one or more persons or entities filing an operat-
ing agreement with a state to conduct business with limited
liability to the owners, yet treated as a partnership for tax
purposes.ManufacturingA type of business that changes basic inputs
into products that are sold to individual customers.Matching conceptA concept of accounting in which
expenses are matched with the revenue generated during a
period by those expenses.MerchandisingA type of business that purchases products
from other businesses and sells them to customers.Net incomeThe excess of revenues over expenses.Net lossThe excess of expenses over revenues.Note payableA type of short- or long-term financing that
requires payment of the amount borrowed plus interest.Objectivity conceptA concept of accounting that requires
accounting records and the data reported in financial state-
ments to be based on objective evidence.Operating activitiesBusiness activities that involve using
the business’s resources to implement its business emphasis.Owners’ equityThe rights of the owners of a company.PartnershipA business owned by two or more individuals.Prepaid expensesAn asset resulting from the prepayment
of a future expense such as insurance or rent.ProprietorshipA business owned by one individual.Retained earningsNet income retained in a corporation.Retained earnings statementA summary of the changes
in the retained earnings in a corporation for a specific period of
time, such as a month or a year.RevenueThe increase in assets from selling products or
services to customers.ServiceA type of business that provides services rather than
products to customers.Statement of cash flowsA summary of the cash receipts
and cash payments for a specific period of time, such as a month
or a year.StockholdersInvestors who purchase stock in a corporation.Stockholders’ equityThe rights of the owners of a
corporation.Unit of measure conceptA concept of accounting requir-
ing that economic data be recorded in dollars.28 Chapter 1 The Role of Accounting in Business