ACG 2021 Block 1 Definitions

General Definitions
Financial accounting - measure business activities of a company and communication of those
measurements to external parties for decision-making purposes.
Auditors trained individuals hired by a company as an independent party to express a professional
opinion of the accuracy of that companys financial statements.
Accrual-basis accounting record revenue when we earn them and record expenses with related
expenses, regardless of when cash is received or paid.
Cash basis accounting record revenues at the time cash received and expenses at the time cash is
paid.
Accounting Principles Definitions
Generally accepted accounting principles (GAAP) - the rules of financial accounting
Revenue recognition principal record revenue in the period in which we earn it.
Matching principal recognizing expenses in the same period as the revenues they help generate.
Accounting Equation Definitions
Accounting Equation equation that shows a companys resources (assets) equal creditors and
owners claims to those resources (liabilities and stockholders equity).
Assets resources owned by a company.
Liabilities - amounts owed to creditors.
Stockholders Equity - owners claims to resources.
Revenues - the amounts earned from selling products or services to customers.
Expenses - the costs of providing products and services.
Net Income - the difference between revenues and expenses.
Accounting Cycle Definitions
Account - summary of the effects of all transactions related to a particular item over a period of time.
Chart of accounts - a list of all account names used to record transactions of a company.
Operating cycle the average time between purchasing or acquiring inventory and receiving cash
proceeds from its sale.
General ledger - all accounts used to record the companys transactions.
Journal a chronological record of all transactions affecting a firm.
Posting the process of transferring the debit and credit information from the journal to individual
accounts in the general ledger.
Trial Balance a list of all accounts and their balances at a particular date, showing the total debits and
credits.
Adjusting entries to record events that have occurred but that have not been recorded, such recording
insurance expense at the end of the month from a prepaid policy.
Adjusted trial balance list of all accounts and their balances after we have updated account balances
for adjusting entries.
Financial Statements periodic reports published by the company for the purpose of providing
information (communicate) to external users.
Income statement - financial statement that reports the companys revenues and expenses over an
interval of time.
Statement of stockholders equity - financial statement that summarizes the changes in stockholders
equity over an interval of time
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Balance sheet - financial statement that presents the financial position of the company on a particular
date.
Statement of cash flows - financial statement that measures activities involving cash receipts and cash
payments over an interval of time.
Closing entries entries that transfer balances of all temporary accounts (revenues, expenses, and
dividends) to the balance of the retained earnings account.
Temporary accounts revenues, expenses, and dividends are closed out at the end of each accounting
period and transferred to Retained Earnings so that the new period begins with a zero (0) balance for
these accounts.
Permanent accounts the balance sheet accounts where the balances are carried forward from period
to period.

Basic Account Definitions need to know definition, normal balance, and financial statement associated
with the account
Balance Sheet
o Cash liquid assets owned by the company.
o Accounts Receivable amounts the company expects to collect from customers based on the
delivery of service or products.
o Prepaid expenses costs of assets acquired in one period that will be expensed in a future
period.
o Accumulated depreciation cumulative amount of depreciation expensed against a particular
asset, such as a vehicle.
o Book value historical cost of an asset, such as equipment, less the accumulated depreciation.
o Accounts Payable Promise to pay cash in the future to creditors when purchasing supplies or
materials.
o Notes payable Total amounts owed to creditors for loaning money to the company.
o Unearned Revenue cash in advance from a customer for products or services to be provided in
the future.
o Common Stock Amount shareholders have invested in the business.
o Retained earnings - cumulative amount of net income earned over the life of the company that
has not been distributed to stockholders as dividends.

Income Statement
o Depreciation the process of allocating the cost of an asset, such as equipment, to expense over
the useful life of the asset.

Statement of Stockholders Equity

o Dividend cash payments to stockholders (owners).