EFinancial Accounting Review Topics 1-4 Vocabulary

Vocabulary flashcards covering core concepts, terms, financial statements, accounting rules, and exercises from Topics 1 through 4.

Financial Accounting

A process of identifying, measuring, classifying, summarizing, and reporting financial information of a company.

Sole Proprietorship

A form of business organization with one owner that is not taxed as a separate entity, where the owner is personally responsible for all business debts and legal liabilities.

Partnership

A form of business organization with two or more owners that is not taxed as a separate entity, where owners are personally responsible for all business debts and legal liabilities.

Corporation

A business entity accounted for separately from its owners, in which shareholders are liable for the corporation's debt only to the extent of their investment.

Balance Sheet

A financial report that summarizes a company's assets, liabilities, and stockholders' equity at a given point in time ($\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$).

Income Statement

A financial statement that summarizes a company's performance by reviewing revenues and expenses during a specific period of time ($\text{Revenues} - \text{Expenses} = \text{Net Income}$).

Statement of Cash Flows

A financial statement summarizing cash receipts (incomings) and cash payments (outgoings) from operating, investing, and financing activities during a specific period.

Statement of Stockholders' Equity

A financial statement reporting changes in equity components, including common stock, retained earnings, and dividends during a specific period.

Generally Accepted Accounting Principles (GAAP)

Standardized accounting guidelines and principles followed by managers and accountants to ensure financial statements are presented fairly and consistently.

Accounting Equation

The foundational equality in accounting stating that $\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$.

Assets

Economic resources owned by a company that are expected to generate future economic benefits.

Current Assets

Assets that will be used within $1\text{ year}$ or converted into cash within the upcoming year, such as cash, prepaid rent, prepaid insurance, supplies, inventory, and accounts receivable.

Accounts Receivable

An asset representing the amount of money owed to a company by its customers after goods or services have been delivered on credit.

Non-Current Assets

Long-term economic resources expected to provide benefits to a company for more than $1\text{ year}$, such as land, buildings, machinery, and patents.

Tangible Assets

Fixed assets that have a physical form, such as machinery, buildings, and land.

Intangible Assets

Assets that are not physical in nature, such as patents, trademarks, and copyrights.

Liabilities

A company's legal debts or obligations that arise during the course of business operations.

Current Liabilities

Obligations due to be settled within $1\text{ year}$, such as accounts payable, salaries payable, rent payable, and unearned revenue.

Non-Current Liabilities

A business's long-term financial obligations that are not due within the present financial year, such as notes payable and bank long-term loans.

Accounts Payable

A short-term liability that generally arises from purchasing goods or services on credit without a formal borrowing agreement.

Notes Payable

A liability account reflecting a formal borrowing arrangement between a business and a lender.

Unearned Revenue

A liability account representing advance payments received from customers before the business delivers the promised goods or services.

Common Stock

Funds raised by a corporation by issuing shares to equity owners in exchange for cash or other considerations.

Retained Earnings

Cumulative net earnings not distributed as dividends but retained by the company, calculated as $\text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends} = \text{Ending Retained Earnings}$.

Debit and Credit Rules

Debit means left and credit means right; assets, expenses, and dividends increase with debits, while liabilities, common stock, retained earnings, and revenues increase with credits.

Trial Balance

An internal account listing used to verify that total debits equal total credits before preparing financial statements.

Operating Cycle

The sequence of steps in which a business acquires resources, provides goods or services, and collects cash from customers.

Accrual Accounting

An accounting system that records revenue when earned and expenses when incurred, regardless of when cash is received or paid.

Cash-Basis Accounting

An accounting method that records revenue only when cash is received and expenses only when cash is paid.

Earnings Per Share (EPS)

A financial metric calculated by dividing net income by the number of shares outstanding: $\text{EPS} = \frac{\text{Net Income}}{\text{Shares Outstanding}}$.

Research and Development (R&D) Costs

Costs incurred for research and development that must be expensed in the current period due to uncertainty surrounding future economic benefits.

Adjusting Entries

Journal entries made at the end of a reporting period to update accounts before financial statements are prepared.

Deferred Expense

An advance payment recorded initially as a prepaid asset that is expensed over time as the benefit is consumed.

Deferred Revenue

Cash collected from a customer before services are performed, recorded initially as unearned revenue (liability) and recognized as revenue when earned.

Accrued Revenue

Revenue earned for services performed that has not yet been billed or collected in cash, recorded by debiting a receivable and crediting revenue.

Accrued Expense

An expense incurred in the current period but not yet paid or recorded, requiring a debit to an expense account and a credit to a liability account.

Accumulated Depreciation

A contra-asset account subtracted from a long-lived tangible asset's cost on the balance sheet to determine its net carrying value.

Temporary Accounts

Income statement accounts (revenues and expenses) and dividends whose balances are closed to zero at the end of each period into retained earnings.

Permanent Accounts

Balance sheet accounts (assets, liabilities, common stock, and retained earnings) that maintain cumulative balances across reporting periods.

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