Terms 1. Accounting- The system of setting up, maintaining, and auditing the books of a firm. 2. Accounting system- An accountants list of related debits and credits of a business. 3. Accounting records- Organized summaries of a business’s financial activities. 4. Financial statements- Financial reports that summarize the financial condition and operations of a business. 5. Service Business- A business that performs an activity for a fee. 6. Proprietorship- A business owned by one person. 7. Asset- Anything of value that is owned. 8. Equities- Financial rights to the assets of a business. 9. Liability- An amount owed by a business. 10. Owners’ equity- The amount remaining after the value of all liabilities is subtracted from the value of all assets. 11. Accounting equation- An equation showing the relationship among assets, liabilities, and owner’s equity. 12. Ethics- The principles of right and wrong that guides and individual in making decisions. 13. Business ethics- The use of ethics in making business decisions. 14. Transaction- A business activity that changes assets, liabilities, or owner’s equity. 15. Account- A record summarizing all the information pertaining to a single item in the accounting equation. 16. Account title- The name given to an account. 17. Account balance- The amount in an account. 18. Capital- The account used to summarize the owner’s equity in a business. 19. Revenue- An increase in owner’s equity resulting from the operation of a business. 20. Sale on account- A sale for which cash will be received at a later date. 21. Expense- A decrease in owner’s equity resulting from the operation of a business. 22. Withdrawals- Assets taken out of a business for the owner’s personal use.

Pg. 9 1. Accounting is the system of setting up, maintaining, and