"CLEP Financial Accounting," Vocabulary from Chapter 19

This list focuses on the equity section.

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25 words 14 learners

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Full list of words from this list:

words only definitions & notes
  1. authorize
    grant permission or clearance for
  2. dividend
    earnings of a corporation distributed to its shareholders
  3. distribute
    give to several people
  4. partnership
    a contract between persons who agree to share profits
  5. proprietor
    someone who owns a business
  6. ownership
    the act of having and controlling property
  7. incorporate
    form a business firm
  8. corporation
    a business firm recognized by law as a single body
  9. declare
    authorize payments of
  10. guarantee
    written assurance that a product or service will be provided
  11. split
    separate into parts or portions
  12. flexibility
    the quality of being adaptable or variable
  13. convert
    exchange or replace with another, usually of the same kind
  14. equity
    the ownership interest of shareholders in a corporation
  15. stock
    a certificate documenting a shareholder's ownership
  16. outstanding
    owed as a debt
  17. preemptive
    designed to prevent an anticipated situation or occurrence
  18. arrears
    an unpaid overdue debt
  19. preferred
    more desirable than another
  20. privilege
    a special advantage or benefit not enjoyed by all
  21. retain
    secure and keep for possible future use or application
  22. par
    a state of being essentially equal or equivalent
    Par value does not have anything to do with the stock's value or the original sales price. If no value is printed on the certificate (illegal in some states), the stated value is the par value. Here are 3 things to remember about par:
    1. Most states make it illegal to originally issue stock at less than par value.
    2. The common stock account contains a dollar amount equal to the number of shares issued x par value per share.
    3. Sometimes corporations declare dividends as a percent of par.
  23. stockholder
    someone who holds shares of stock in a corporation
    The CLEP test will tempt you to give stockholder-owners a withdrawal such as is done in a sole proprietorship or a partnership. That cannot happen with a corporation. If stockholder-owners want to get money from their corporation, the best way is as employees with salaries.
  24. principle
    a rule or standard especially of good behavior
    Partnership profit-splitting plan:
    Step 1: Pay partners a certain percentage of their average equity.
    Step 2: Pay partners a certain $/hour for their time.
    Step 3: Divide the remaining profit or loss by a sharing ratio.
  25. formula
    a statement expressing some fundamental principle
    --dollar amount per share x number of shares = total dividend
    --dividend% x par value of 1 share = total dividend/share
    --dividend% x common or preferred stock account = total common or preferred stock dividend
Created on November 2, 2016 (updated December 15, 2016)

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