Accounting Words

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Proprietorship: For this entity, from a legal perspective, the business is the proprietor.

An entity that has less than 2 owners.

Faithful representation: also called the objective principle

States evidence is objective

Asserts that data are complete, neutral and free from material error.

Partnership: Business organization of 2 or more partners with mutual agency.

Joins 2 or more individuals as co-owners.

Possess mutual agency.

Stock: The corporate charter specifies how much of this a corporation can sell.

Individual units are referred to as shares.

Represents ownership in a corporation.

A corporation’s unit of division

Limited Liability: Feature that enables a corporation to raise more money than proprietorships and partnerships.

One of the chief advantages of a corporation.

Feature that sets the maximum amount of financial loss by a stockholder to the cost of the investment.

Limited Liability Company: Entity where the business, and not the proprietor, is liable for the company’s debts.

Type of entity that is designed to limit personal liability exposure.

Cost Principle: The accounting principle that goods and services purchased should be recorded at their historical cost and not at their current market value.

Holds that the accounting records should continue reporting the historical cost of an asset over its useful life.

Hold that fair market value should not be used over actual costs.

States transactions should be recorded at the price that was paid.

Reason why accountant should not write-up the value of equipment due to an increase in its fair value.

FASB: Creators of generally accepted accounting principles.

Is composed of accountants,

Net Loss of $5,000: Revenue of $65000 and expenses of $70000.

Creditors: Use financial accounting information to decide whether to extend credit

Person or business extending credit.
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