Financial Statements and the Accounting System

These flashcards cover key vocabulary and concepts related to financial statements and the accounting system.

Financial Accounting

Information for decisions regarding the financial performance and position of a business.

Transactions

Business transactions and events that form the basis for financial statements.

Assets

Resources owned or controlled by a company expected to yield future benefits.

Liabilities

Obligations to transfer assets or provide products/services to others.

Equity

Owner’s claim on a company’s assets, also known as stockholders’ equity.

Accrued Liabilities

Amounts owed that are not yet paid, such as wages payable or taxes payable.

Unearned Revenue

Liability recorded when customers pay in advance for products or services.

Double-Entry Accounting

An accounting system that records each transaction in at least two accounts.

T-Account

A graphical representation of a ledger account, used to show the effects of transactions.

Trial Balance

A summary of all account balances at a point in time to verify that total debits equal total credits.

Income Statement

Reports revenues less expenses incurred by a business over a period of time.

Balance Sheet

Reports the financial position of a company at a specific point in time; Assets = Liabilities + Equity.

Statement of Cash Flows

Lists the cash inflows and outflows for a specific period.

Common Stock

Equity account representing the ownership investment made by shareholders.

Dividends

Distribution of a portion of a company's earnings to its shareholders.

Adjusting Entries

Entries made at the end of an accounting period to update account balances.

Accounts Receivable

Asset representing amounts due from customers for credit sales.

Accounts Payable

Liability representing amounts owed to suppliers for goods or services purchased on credit.

Revenue Recognition Principle

The principle that revenue should be recorded when it is earned, regardless of when cash is received.

Expense Recognition (Matching) Principle

The principle that expenses should be reported in the same period as the revenues they helped generate.

Retained Earnings

The cumulative amount of net income kept by a company instead of being distributed as dividends.

Depreciation

The process of allocating the cost of a long-term asset to expense over its useful life.

Prepaid Expenses

Payments made for goods or services to be received in the future; recorded as assets until used.

General Ledger

A complete record of all accounts used by a business and their respective balances.