Key Concept Cohort One - Units 2 & 3 Review

Flashcards covering key vocabulary from units two and three of the accounting course, including definitions of core accounting terms, financial statements, and analytical methods.

Accounting System

Helps analyze transactions, handle routine bookkeeping, and structure information to evaluate company performance and health.

End Goal of the Accounting Cycle

To prepare financial statements for external users.

General Purpose Financial Statements

The balance sheet, income statement, and statement of cash flows, primarily prepared for external users.

Managerial Accounting

A forward-thinking process that focuses on where a business is today and where it is going in the future, used internally.

Financial Accounting

Focuses on historical events and numbers to make decisions based on what has happened, primarily for external users.

Accounting Cycle

An ongoing process involving analyzing transactions, recording them, summarizing their effects, and preparing financial statements.

Basic Accounting Equation

Assets = Liabilities + Owner's Equity (or Partner's Equity, Stockholder's/Shareholder's Equity).

Assets

Something the company owns of value, such as cash, equipment, inventory, property, and accounts receivable.

Liabilities

Debt owed by the company, typically incurred when something is bought on credit; often identified by the word 'payable'.

Owner's Equity

The investment in the company by its owners, including initial investments, retained earnings, and common stock.

Retained Earnings

Profit in the company that has not been paid out to the owners; calculated as Revenue - Expenses - Dividends.

Common Stock

An equity account representing ownership shares in a corporation.

Chart of Accounts

An organized system, similar to an index, that lists all accounts with associated reference numbers, typically in financial statement order (assets, liabilities, equity, revenues, expenses).

Revenue Accounts

Accounts used to record when a product has been sold or a service has been performed, which increases equity.

Expense Accounts

Costs incurred during normal business operations, such as utility expense, payroll expense, cost of goods sold, or advertising, which decrease equity.

Dividends

Money distributed to stockholders or owners of an organization, which reduces equity.

Accounts Receivable

An asset account representing money owed to the company by a customer for goods or services sold on credit.

Accounts Payable

A liability account representing money the company owes for goods or services purchased on credit.

Income Statement

A financial statement showing sales revenue minus expenses, indicating how well the company is operating over a specific period of time (with a start and end date).

Balance Sheet

A financial statement that shows assets, liabilities, and equity for a specific point in time, providing a snapshot of the company's financial picture, and must always balance based on the accounting equation.

Closing Entries

Journal entries made to transfer the net income (or loss) from the income statement accounts into the equity account, ensuring the balance sheet remains in balance.

Horizontal Analysis

Analyzing a company's financial performance across multiple years (e.g., year to year) to observe changes over time.

Vertical Analysis

Analyzing financial statements by expressing each line item as a percentage of a base figure (e.g., revenue for the income statement) to understand its proportion.