Financial Accounting Overview

These flashcards cover key concepts in financial accounting, including definitions of financial terms related to assets, liabilities, equity, and different financial statements, as well as fundamental principles and ethical considerations in accounting.

Assets

Anything of value owned or leased by a business, primarily used to produce revenue.

Liabilities

Claims of creditors against a firm’s assets; obligations to provide assets or services in the future.

Owners’ Equity

Claims of the owners on the assets of a firm; the owners’ residual interest after deducting liabilities.

Balance Sheet

A financial statement presenting a company's financial position at a specific point in time, showing assets, liabilities, and owners' equity.

Income Statement

A financial statement showing revenues and expenses over a specified period, resulting in net income.

Statement of Cash Flows

A financial statement that discloses the changes in cash during a period, categorized by operating, investing, and financing activities.

Accrual Accounting

An accounting method where revenues are recognized when earned and expenses when incurred, regardless of cash transactions.

Recognition

The process of admitting information into the financial statements when it meets certain criteria.

GAAP (Generally Accepted Accounting Principles)

A set of broad and specific guidelines for measuring and reporting financial information.

Qualitative Characteristics of Accounting Information

Attributes that make financial information useful, including relevance, faithful representation, comparability, verifiability, and understandability.

Cash Basis Accounting

An accounting method where revenue is recognized when cash is received and expenses when cash is paid.

Financial Reporting Reform

Changes in regulations enacted to restore investor confidence and improve the credibility of financial reporting after scandals.

FASB (Financial Accounting Standards Board)

The organization responsible for establishing accounting and reporting standards in the U.S.

Conceptual Framework

A system of interrelated objectives and fundamentals that underpin financial accounting and reporting.

Current Assets

Assets that are expected to be converted to cash or consumed within one year or the operating cycle, whichever is longer.

Current Liabilities

Liabilities that are expected to be settled within one year or the operating cycle, whichever is longer.

Expense Recognition: Matching Principle

The requirement to record all expenses incurred in generating revenue in the same period as the revenue.

Comprehensive Income

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources.

Ethics in Accounting

Guidelines and rules provided by a Code of Ethics to help accounting professionals carry out their responsibilities ethically.

Ownership Contributions

Increases in equity due to transfers from other entities to obtain or increase ownership interests.

Materiality

The significance of financial information that could influence the decision-making of users.