Linking Personal Accounting to Business Accounting

100 vocabulary flashcards pertaining to the key concepts from the lecture on personal accounting and business accounting.

Net Worth

In personal accounting, it is similar to equity in business accounting.

Equity Equation

Equity = Assets – Liabilities.

Owner's Equity Formula

Owner's Equity = Beginning Owner's Capital + Additional Owner Investments + Net Income (Loss) – Owner's Withdrawals.

Owner's Investments

Contributions made by an owner into the business by investing personal assets.

Owner's Withdrawals

Assets taken from the business by the owner for personal use.

Service Business

A business that provides services instead of goods.

Merchandising Business

A business that buys goods to resell to customers.

Manufacturing Business

A business that makes the products it sells.

Revenue Recognition

The process of recording revenue in the accounting period it is earned.

Cash Received Before Services

Increase cash and increase unearned revenue.

Cash Received When Service Delivered

Increase cash and increase revenue.

Cash Received After Service

Increase accounts receivable and increase revenue.

Unearned Revenue

A liability representing cash received for services to be performed in the future.

Accrual Accounting

Recording revenues and expenses when they occur, regardless of cash flow.

T-Accounts

A visual representation of accounts in double-entry bookkeeping.

Financial Statements

Reports that summarize a business's financial performance and position.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and owner's equity.

Income Statement

A financial statement that shows a company's revenues and expenses over a period.

Statement of Cash Flows

A financial statement that provides information about cash inflows and outflows.

Ethics in Accounting

The principles of right conduct in financial reporting and accounting practices.

Three Main Types of Businesses

Service, merchandising, and manufacturing.

Prepaid Expenses

Payments made for expenses before the service or benefit is received.

Accounts Receivable

Money owed to a business by its customers for goods or services delivered.

Accounts Payable

Money owed by a business to its suppliers or creditors.

Liquidity

The ease with which an asset can be converted into cash.

Net Income

The profit remaining after all expenses have been deducted from revenues.

Net Loss

The situation in which expenses exceed revenues.

Cash Flow from Operating Activities

Cash transactions related to the core activities of the business.

Cash Flow from Investing Activities

Cash transactions involving the purchase or sale of assets.

Cash Flow from Financing Activities

Cash transactions related to borrowing and repaying debts.

Pressure in Fraud Triangle

Incentive or motivation to commit fraud.

Opportunity in Fraud Triangle

Circumstances that allow fraud to occur.

Rationalization in Fraud Triangle

Justification for committing fraud.

Accrual Basis Accounting

Revenue is recognized when earned, regardless of when cash is received.

Ownership Equity

The owner's total claim on the assets of the business.

Tax Implications

The effects of financial decisions on tax liabilities.

Owner's Contribution

Investments made by the business owner to support operations.

Bank Loans

Borrowed capital from banks that must be repaid with interest.

Salaries Expense

Costs incurred for employee compensations during a specific period.

Utilities Expense

Costs for essential services like electricity and water.

Insurance Expense

Cost incurred for risk management through insurance policies.

Withdrawal by Owner

Withdrawal of funds by the business owner for personal use.

Dividends

A portion of a company's earnings distributed to shareholders.

Business Ethics

Moral principles that guide the conduct of business.

Double-Entry Accounting

An accounting method where every transaction affects at least two accounts.

Accounting Period

The time interval used for financial reporting.

Closing Entries

Journal entries made at the end of an accounting period to transfer balances.

Deferrals

Revenue or expenses recognized at a later date than when the cash was received or paid.

Accrued Expenses

Expenses that have been incurred but not yet paid.

Trial Balance

A statement of all debits and credits in the ledger to verify that they balance.

Financial Analysis

The evaluation of the financial health of a business.

Accounting Principles

The rules and guidelines that govern financial accounting.

Merchandising Inventory

Goods available for sale to customers.

Retail Business

A business that sells goods directly to consumers.

Consulting Services

Professional services provided by experts to businesses or individuals.

Gross Profit

Sales revenue minus the cost of goods sold.

Business Cycle

The fluctuation of economic activity over time.

Segment Reporting

The reporting of financial information for different business segments.

Vertical Analysis

A method of financial statement analysis in which each entry is listed as a percentage of a base number.

Horizontal Analysis

The comparison of financial data over different periods.

Earnings Before Interest and Taxes (EBIT)

A measure of a firm's profit that excludes interest and income tax expenses.

Cost of Goods Sold (COGS)

Direct costs attributable to the production of the goods sold by a company.

Depreciation Expense

The systematic reduction of the recorded cost of a fixed asset.

Amortization

Gradual write-off of an intangible asset over its useful life.

Return on Investment (ROI)

A measure of the profitability of an investment.

Working Capital

Capital available for day-to-day operations, calculated as current assets minus current liabilities.

Market Capitalization

The total market value of a company’s outstanding shares.

Sales Revenue

The income generated from selling goods and services.

Financial Ratios

Metrics used to evaluate a company's financial performance.

Discount Rate

The interest rate used to discount future cash flows.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Investing Activities

Transactions involving the acquisition or disposal of long-term assets.

Financing Activities

Transactions that result in changes to the size and composition of the equity capital and borrowings of the entity.

Net Cash Flow

The net amount of cash being transferred into and out of a business.

Cash Equivalents

Short-term investments that are easily convertible to cash.

Current Assets

Assets that are expected to be converted into cash or consumed within one year.

Current Liabilities

Obligations expected to be settled within one year.

Long-Term Assets

Assets that will provide economic benefits for more than one year.

Long-Term Liabilities

Obligations that are due beyond one year.

Business Valuation

The process of determining the economic value of a business.

Financial Projections

Estimates about future income, expenses, and other financial metrics.

Sensitivity Analysis

A technique used to predict the outcome of a decision given a certain range of variables.

Participation Interest

An interest in a business entity representing the ownership of a percentage of the business.