Accounting Principles and Concepts (Chapter 1)

Vocabulary flashcards covering key concepts from risk and accounting basics discussed in the video lecture.

Risk

Uncertainty about outcomes in business and life; risk arises from unpredictable changes in market conditions, prices, demand, and competition.

Uncertainty

The state of not knowing what will happen in the future; a key component of risk in business.

Profit

Revenue minus expenses; the earnings a business makes.

Revenue

Income from business activities intended to earn income; examples include sales, fees, commissions, interest, rent, and tuition.

Expense

The cost of assets consumed or services used in earning revenue (e.g., salaries, rent, advertising, utilities, taxes).

Asset

Resources owned by a business that provide future benefit; examples include cash, supplies, equipment, and inventory.

Liability

Debt or obligation; creditors’ claims against assets (e.g., accounts payable, note payable).

Stockholders' Equity

Owners’ claim on the assets; assets minus liabilities; composed of common stock and retained earnings.

Common Stock

Investment by owners; a component of stockholders’ equity (also called contributed capital).

Retained Earnings

Profits kept in the business for reinvestment; earnings held back rather than distributed to owners.

Dividends

Distributions of profits to owners; not an expense; reduce stockholders’ equity.

Net Income

Another term for profit; revenues minus expenses.

GAAP

Generally Accepted Accounting Principles; the set of accounting standards and rules used in financial reporting.

FASB

Financial Accounting Standards Board; the organization that establishes GAAP in the U.S.

Monetary Unit Assumption

The accounting assumption that financial information is reported in a single currency (e.g., dollars) and that monetary values are comparable.

Economic Entity Assumption

A business's financial activities are kept separate from the owner's personal finances.

Cost Constraint

The idea that the benefit of information must justify the cost to produce it.

Historical Cost Principle

Assets are recorded at the cost paid at the time of acquisition.

Fair Value Principle

Assets and liabilities are measured at their current market value when appropriate.

Asset Categories

Examples include cash, supplies, equipment, and inventory; assets are classified as current or long-term.

Accounts Payable

Amounts owed to vendors for goods or services; a current liability.

Note Payable

A loan payable to a lender (often a bank); typically incurs interest.

Income Statement

A financial report showing revenues and expenses and the resulting profit or loss from operations.

Balance Sheet

A financial statement showing assets, liabilities, and stockholders’ equity at a point in time.

Retained Earnings Statement

A report detailing changes in retained earnings over a period.

Cash Flow Statement

A report showing cash inflows and outflows from operating, investing, and financing activities.

Four Financial Reports

Income statement, balance sheet, retained earnings statement, and cash flow statement.