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 cant be sold
Every economic transaction has 2 sides. Examples: lender/borrower, seller/purchaser, employer/employee, receiver/sender

Note receivable the borrowers 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 entitys 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