Fundamentals of Accountancy, Business and Management 2 (FABM) - Lessons 1-3

A comprehensive set of vocabulary flashcards covering the Statement of Financial Position, Statement of Comprehensive Income, and Statement of Changes in Equity based on Lesson 1-3 of the FABM Grade 12 curriculum.

Statement of Financial Position

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of what a company owns and owes.

Accounting Equation

$$\text{ASSETS} = \text{LIABILITIES} + \text{OWNER’S EQUITY/CAPITAL}$$

Assets

Resources controlled by the entity as a result of past transactions and events and from which future economic benefits are expected to flow to the entity.

Current Assets

Assets that can be realized (collected, sold, used up) within $1$ year after the year-end date, also known as short-term assets.

Cash

Bills, coins, bank accounts, and operating funds held by the company.

Cash equivalents

Highly liquid investments that are convertible to known cash amounts that are subject to an insignificant risk of changes in value.

Accounts receivable

The amount owed to a company resulting from providing goods and/or services on credit, also called trade receivable.

Notes receivable

An asset of a company, bank, or other organization that holds a written promissory note from another party.

Merchandise inventory

The cost of goods on hand and available for sale at any given time.

Supplies

Current assets representing the cost of supplies on hand at a point in time.

Prepaid expenses

Future expenses that the company had paid for in advance.

Liquidity

The criteria used to arrange current assets based on which asset can be realized first.

Non-Current Assets

Assets that cannot be realized (collected, sold, used up) within $1$ year after the year-end date, also called long term assets.

Properties, Plant, and Equipment

Long term assets owned by the company and used in its operations, including land, buildings, equipment, and furnitures.

Long-term investments

Non-current assets held for more than $1$ year or accounting period used to create other income outside of normal operations, not used in operating activities.

Intangible assets

Assets meeting the definition of an asset but without physical substance.

Contra Assets

Accounts presented under the asset portion of the SFP that act as reductions to the company’s assets.

Allowance for doubtful accounts

A contra-asset account associated with accounts receivable representing the estimated value a company does not expect to receive payment for.

Accumulated Depreciation

The contra asset to property, plant, and equipment representing the total amount of depreciation booked against the fixed assets.

Liabilities

Obligations of an entity arising from past transactions or events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

Current Liabilities

Liabilities that fall due (paid or recognized as revenue) within $1$ year after the year-end date, also called short-term liabilities.

Accounts payable

The aggregate amount of short-term obligations to pay suppliers for products and services purchased on credit.

Notes payable

A written promissory note where a borrower promises to pay back a specific amount with interest over a predetermined period.

Accrued Expenses

Expenses incurred but not yet paid, such as salaries, rent, and utilities.

Non-current Liabilities

Liabilities that do not fall due within $1$ year after the year-end date, also called long term liabilities.

Mortgage payable

The liability of a property owner to pay a loan that is secured by property.

Owner's Equity

The owner's investment in the business minus draws, plus net income (or minus net loss) since the business began; also known as net worth or residual claim.

Horizontal form

A balance sheet format where assets and liabilities are shown side by side.

Vertical form

A balance sheet format where assets, liabilities, and equity are shown vertically.

Report Form

A popular balance sheet format that presents all accounts vertically, resembling a traditional report.

Account Form

A balance sheet format that presents asset accounts on the left side and liabilities and equity accounts on the right side.

Statement of Comprehensive Income

A report that measures the financial performance or success of company operations for a given period, also known as an income statement or P&L.

Profit

The amount left after deducting all expenses incurred by the business from its revenues or sales.

Comprehensive Income

The change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners.

Net Income

The positive result of a company's operations for a specific period of time.

Net loss

The negative result of a company's operations for a specific period of time.

Revenue

Gross receipts or inflow of economic benefits earned by the company from selling goods, services, or other operating activities.

Expenses

Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities resulting in decreases in equity.

Gains

Income from non-business-related transactions, such as selling a company asset.

Losses

Decreases in economic benefits that may or may not arise in the course of ordinary activities, such as losing money when selling a company car.

Cost of sales

The amount paid or payable by the business entity to its supplier for the merchandise sold to customers.

Beginning inventory

The amount of inventory at the start of the accounting period, equal to the ending inventory of the previous period.

Net Purchases

The total amount paid or payable to suppliers for the period, calculated using gross purchases, discounts, returns, and freight-in.

Freight-in

An expense incurred to transport merchandise to the buyer’s place.

Selling Expenses

Expenses related to the sale and delivery of merchandise, such as sales commissions and advertising.

General and Administrative Expenses

Expenses not directly related to merchandising but necessary for business operation, such as admin salaries and home office utilities.

Single-step Approach

An income statement format commonly used by service companies where net income is computed by subtracting Total Expenses from Total Revenues.

Multi-step Approach

An income statement format that uses multiple subtractions to compute net income on the bottom line.

Statement of Changes in Equity

A statement prepared prior to the Statement of Financial Position that reports all increases or decreases to the owner's interest during the period.

Permanent accounts

Asset, liability, and equity accounts that are not closed at the end of the accounting period and are measured cumulatively.