Financial Accounting Vocabulary

Flashcards covering key vocabulary and concepts from the lecture notes on financial accounting, including financial structure, balance sheets, assets, liabilities, equity, accounting equations, profit & loss and IFRS.

Financial Structure

The set of elements configured by financing sources (partners' capital and loans) and investments (office, computer, workout machines, and current account) used to start a business.

Balance Sheet

A sorted table with financial structure elements and their amounts, reflecting a company's situation at a given point in time.

Asset

In accounting, it represents the entire set of investments a company holds.

Liabilities

Represent the set of financing sources reflecting company's debts or the amount of money it owes to other parties.

Equity

Represents the set of financing sources reflecting the partners’ investment in the company.

Basic Accounting Equation

A = L + Eq (Assets = Liabilities + Equity), reflecting the balance between a company's investments and financing sources.

Assets

The set of elements that a company owns, committed to the company to allow it to operate; a present economic resource controlled by an entity as a result of past events, with the potential to yield economic profit.

Liability

A company's financial debts or payment obligations that arise during its business operations; a present obligation of the entity arising from past events, potentially resulting in a transfer of economic resources to settle it.

Equity

Initially formed by the partners’ contributions, and subsequently may include profit; the residual value of the assets of the entity after deducting all of its liabilities.

Revenue

The income generated from providing services (e.g., members' fees in a gym).

Expenses

Costs a company must pay (e.g., office insurance, electricity, salaries, taxes, loan interest).

Profit and Losses (P&L)

The difference between revenues and expenses. If positive, it indicates profit; if negative, it indicates losses.

Self-financing

The company's ability to increase its funding from its own profit, instead of acquiring it from external sources.

Five Accounting Elements

Assets, Liabilities, Equity, Revenue, and Expenses

Profit and Loss Account (P&L)

A financial statement calculating the difference between revenues and expenses over a certain period, with its closing balance being an equity element at the end of each period.