ACC 300 Lecture 02 - Balance Sheet Vocabulary

Key vocabulary terms, definitions, and balance sheet mechanics from ACC 300 Lecture 02.

Accounting equation

The core financial balance stating that $\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$.

Account

A standardized record used to track individual financial items, such as Cash, Inventory, and Accounts Payable.

Permanent accounts

Balance sheet accounts whose ending balances carry forward as opening balances into the subsequent accounting period.

Temporary accounts

Income statement accounts that are closed at period-end, resetting the opening balance of the next period to $0$.

Transaction

A reportable economic event that produces a change in assets, liabilities, or equity, affecting at least two accounts.

Contra-asset

An account, such as Accumulated Depreciation, that offsets and reduces the carrying value of an asset, where $\text{Book value} = \text{Cost} - \text{Accumulated Depreciation}$.

Common stock at par

The equity component calculated as $\text{Number of shares issued} \times \text{par value per share}$.

Additional Paid-in Capital (APIC)

Contributed capital reflecting the excess proceeds from share issuance over par value: $\text{Issue proceeds} - \text{Common Stock at Par}$.

Retained earnings

Cumulative earnings retained in the business, calculated as $\text{Beginning retained earnings} + \text{Net income} - \text{Dividends}$ (or minus net loss).

Balance sheet extension

A transaction pattern where total assets increase alongside an increase in liabilities or equity (e.g., buying inventory on credit).

Balance sheet reduction

A transaction pattern where total assets decrease alongside a decrease in liabilities or equity (e.g., paying a supplier with cash).

Asset swap

A transaction pattern where one asset increases while another asset decreases, leaving total assets unchanged (e.g., paying rent in advance with cash).

Liability/equity swap

A transaction pattern where one liability or equity component increases while another decreases, leaving total claims unchanged (e.g., converting a loan into equity).

Debit (Dr.)

An entry made on the left side of a T-account; it increases asset and expense accounts, and decreases liability, equity, and revenue accounts.

Credit (Cr.)

An entry made on the right side of a T-account; it increases liability, equity, and revenue accounts, and decreases asset and expense accounts.

Advances from Customers

A current liability account representing cash received from customers prior to the delivery of goods or services.

Prepaid Rent

An asset account established upon advance rent payment, which is recognized as an expense only as the service period passes.

Dividends

Distributions of earnings paid to shareholders that directly reduce retained earnings rather than being recognized as an operating expense.