Economic Entity Concept: The assumption that a single ,identifiable unit must be accounted for in all
Corporation: A form of entity organized under the laws of a particular province or the federal
Non-business Entity: organization operated for some purpose other than to earn profit.
Creditor: someone to whom a company or person has a debt.
Asset: A future economic benefit to an organization.
Liability: An obligation of the business. ex :Accounts Payable ,Accrued Liabilities, Salaries & Wages
Payable ,Taxes Payable, loan payable, mortgage payable.
Revenue: Inflows of assets resulting from the sales of products and services.
Expense: Outflows of assets resulting from the sale of goods and services.
Accounting: The process of identifying, measuring, and communicating economic information to various
Owner's Equity: The owners claims on the assets of an entity.
Shareholder's Equity: The owners equity in a corporation.
Retained Earnings: part of owner's equity that represents the income earned less dividends paid over
the life of an entity.
Balance Sheet: The financial statement that summarizes the assets, liabilities, and owner's equity at a
specific point in time.
Income Statement: A statement that summarizes revenues and expenses.
Dividends: A distribution of the net income of a business to its owners.
Statement of Retained Earnings: The statement that summarizes the income earned and dividends paid
over the life of a business.
Cost Principal: Assets are recorded at the cost to acquire them.
Going Concern: The assumption that an entity is not in the process of liquidation and that it will
continue indefinitely. 1. Income Statement
Reports the results of operations for a specific period of time
Revenues, expenses, profit (loss) *one element of “performance”+
2. Balance Sheet
Reports the financial position at a specific date
Assets, liabilities, shareholders’ equity
3. Cash Flow Statement
Reports the cash consequences of transactions by type of activity for a specific period of
Cash receipts & disbursements (payments)
4. Statement of Retained Earnings
Reports the changes in retained earnings for a specific period of time
e.g. net income, dividends
Financing: a)obtaining funds from creditors ( notes payable, bonds payble, must repay loan or interest)
b) owners ( investors in company)
payment of dividends
Investing: - Funds received are invested to accomplish goals of company
- Purchase/ sales or property, purchases of inventory, payments to suppliers, payment of
Operating - activities associated with carry on the business ( ex: sales, collections from customers,
purchases of inventory, payments to suppliers, payment of expenses) Chapter 2