Glossary Review CHAPTER 1
Accounting The information system that identifies, records, and communicates the economic
events of an organization to interested users.
Accounting information system The system of collecting and processing transaction data and
communicating financial information to decision-makers.
Assets Resources a business owns.
*Auditing The examination of financial statements by a certified public accountant in order to
express an opinion as to the fairness of presentation.
Balance sheet A financial statement that reports the assets, liabilities, and owner’s equity at a
specific date.
Basic accounting equation Assets = Liabilities + Owner’s equity.
Bookkeeping A part of the accounting process that involves only the recording of economic
events.
Convergence The process of reducing the differences between U.S. GAAP and IFRS.
Corporation A business organized as a separate legal entity under state corporation law,
having ownership divided into transferable shares of stock.
Drawings Withdrawal of cash or other assets from an unincorporated business for the personal
use of the owner(s).
Economic entity assumption An assumption that requires that the activities of the entity be
kept separate and distinct from the activities of its owner and all other economic entities.
Ethics The standards of conduct by which actions are judged as right or wrong, honest or
dishonest, fair or not fair.
Expanded accounting equation Assets = Liabilities + Owner’s capital − Owner’s drawings +
