Accounting: Assets, Balance Sheets, and Key Equations

Comprehensive vocabulary flashcards covering the definitions of assets, the three major accounting equations, balance sheet structure, and key financial computation ratios.

Assets

Resources owned by a business that have economic value and are expected to provide future benefits.

Current Assets

Assets expected to be converted to cash or used within 1 year (or operating cycle), such as Cash, Accounts Receivable, Inventory, and Prepaid Expenses.

Non-Current Assets (Fixed/Long-term)

Assets held for more than 1 year and used in operations, including Property, Plant & Equipment (PPE), Buildings, and Vehicles.

Basic Accounting Equation (Balance Sheet Equation)

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Equity Equation

$$\text{Equity} = \text{Assets} - \text{Liabilities}$$

Expanded Accounting Equation

$$\text{Assets} = \text{Liabilities} + \text{Owner's Capital} + \text{Revenues} - \text{Expenses} - \text{Drawings}$$

Liabilities

Obligations or debts owed by the business.

Equity (Owner's Equity/Capital)

Owner's claim on the assets after liabilities are paid.

Balance Sheet (Statement of Financial Position)

A financial statement that shows a company's financial position at a specific point in time, following the rule that Total Assets must equal Total Liabilities plus Equity.

Working Capital

$$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

Current Ratio

$$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$

Debt to Equity Ratio

$$\text{Debt to Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Total Equity}}$$

Return on Equity (ROE)

$$\text{Return on Equity (ROE)} = \frac{\text{Net Income}}{\text{Average Shareholders' Equity}}$$