Financial Accounting Midterm Ultimate Study Guide

Accounting Cycle

A systematic, multi-step process through which financial information is identified, recorded, processed, and summarized into financial statements.

Business Transaction

An economic event that directly alters the financial position of a business entity and can be reliably measured in monetary terms.

Separate Entity Principle

A principle stating that a business entity is distinct and separate from the personal affairs of its owners.

Fundamental Accounting Equation

The relationship that states that Assets = Liabilities + Shareholders' Equity.

Current Assets

Assets expected to be converted into cash or used within a year, such as cash and accounts receivable.

Liabilities

Existing debts, claims, or legal obligations arising from past transactions, which require an outflow of resources.

Shareholders' Equity

The residual ownership claim against total assets after all liabilities are satisfied.

Double-Entry Accounting

A system that uses debits and credits to record the dual balancing effects of every financial transaction.

T-Account

A visual representation of accounts where debits are listed on the left and credits on the right.

Trial Balance

An internal accounting schedule listing every general ledger account alongside its ending debit or credit balance.

Net Income

The total earnings of a business after all expenses have been deducted from revenues.

Machine Learning

A subset of artificial intelligence where systems learn and adapt from vast datasets without explicit programming for every task.