Financial Accounting Fundamentals Flashcards

A vocabulary flashcard set covering fundamental financial accounting principles, accounting equations, primary business activities, financial statements, and preparation order.

Financial Accounting

The process of measuring economic activities of a business and communicating those financial reports to external users to make decisions.

Accounting Equation

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

Operating Activities

Running the operations of the business to generate revenue, such as selling goods or services and paying electricity bills, salary, or rent.

Investing Activities

Putting funds into the business to support operations for the long-term, such as purchasing land, buildings, or machinery.

Financing Activities

Acquiring funding for a business from investors and lenders, such as issuing common stock, borrowing money, paying off loans, or paying dividends.

Assets

Economic resources of a company, including cash, inventory, land, buildings, and machinery.

Liabilities

Claims of creditors to economic resources, including utilities payable, salaries and wages payable, supplier accounts payable, and taxes payable.

Stockholders' Equity

Owners' claims to economic resources, comprised of common stock and retained earnings: $\text{Stockholders' Equity} = \text{Common Stock} + \text{Retained Earnings}$.

Revenues

Sales of goods and services to customers.

Expenses

Costs incurred in generating revenues.

Net Income

The overall profitability of a company, calculated as $\text{Net Income (Loss)} = \text{Revenues and Gains} - \text{Expenses and Losses}$.

Dividends

Payments made to stockholders.

Corporation

A form of business organization characterized by double taxation.

Balance Sheet

A financial statement that presents the financial position of a company on a particular date, demonstrating that resources equal the claims of creditors and owners.

Income Statement

A financial statement that shows the profitability of a company.

Statement of Cash Flows

A financial statement that classifies cash transactions into operating, investing, and financing activities, where $\text{Net Cash Flow} = \text{Cash Inflows} - \text{Cash Outflows}$.

Statement of Stockholders' Equity

A financial statement showing changes in owners' claims to resources, where $\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$.

Statement of Comprehensive Income

A financial statement tracking changes in equity from nonowner sources, where $\text{Comprehensive Income} = \text{Net Income} + \text{Other Comprehensive Income}$.

Order of Financial Statement Preparation

The required sequential order for preparing financial statements: Income Statement first, then Statement of Stockholders' Equity, then Balance Sheet.