COMM 111: Introduction to Financial Accounting - Complete Flashcards

Comprehensive vocabulary flashcards covering basic financial accounting concepts, the accounting cycle, financial statement structures, inventory valuation methods, receivables, investments, and exam review topics.

Financial Accounting

The language of business used by managers to communicate a firm's financial and economic information to external parties such as shareholders and creditors.

Form 10-K

The audited annual report filed by publicly listed firms with regulatory agencies such as the U.S. SEC.

Form 10-Q

The unaudited quarterly report filed by publicly listed firms with regulatory agencies such as the U.S. SEC.

EDGAR

The Electronic Data Gathering, Analysis, and Retrieval system, which stores financial statements for all firms required to file annual reports with the U.S. SEC and became mandatory in $1996$.

Balance Sheet

A financial statement (also called the statement of financial position) that reports a company's assets, liabilities, and owner's equity as of a specific date.

Assets

Economic resources controlled by a business that are expected to produce future economic benefits.

Liabilities

Debts or economic obligations of a company payable to outside parties.

Owner's Equity

The residual claim of owners or shareholders on the assets of a business after deducting liabilities.

Contributed Capital

The amount of capital invested in a corporation by its owners, with common shares serving as the basic component.

Retained Earnings

The cumulative net income earned by business operations and retained within the company after subtracting all dividends declared.

Income Statement

A financial statement (also called the statement of operations or statement of earnings) that reports revenues, expenses, and net income or net loss over a specific period.

Statement of Cash Flows

A financial statement measuring a company's cash-generating ability during a period by tracking cash inflows and outflows across operating, investing, and financing activities.

Accounting Equation

The foundational mathematical equality in accounting: $\text{Assets} = \text{Liabilities} + \text{Owner's Equity}$.

Entity Assumption

The accounting principle stating that an organization stands apart as a separate economic unit, requiring personal transactions of owners to remain separate from the business.

Going Concern Assumption

The assumption that an accounting entity will continue to operate and carry out its commitments in the foreseeable future.

Cost Assumption

The convention that assets and services acquired should be recorded at their actual historical acquisition cost.

Stable-Monetary-Unit Assumption

The assumption that the purchasing power of the currency remains relatively stable over time, allowing all accounts to be stated in dollars of the same currency without inflation adjustments.

Temporary Accounts

Income statement accounts (revenues, expenses) and dividend accounts that are periodically closed to retained earnings, resetting their balances to zero.

Permanent Accounts

Balance sheet accounts (assets, liabilities, and shareholder equity) that maintain ongoing cumulative balances and are never closed at the end of a period.

Accrual-Based Accounting

An accounting system where revenues are recorded when earned and expenses are recorded when incurred, regardless of the timing of cash receipts or disbursements.

Cash-Based Accounting

An accounting method where revenues are recognized only when cash is received and expenses when cash is disbursed; it is not permitted under US GAAP or IFRS.

Prepaid Expenses

An asset account representing advance cash payments for goods or services that provide future economic benefit to the business.

Matching Principle

The accounting guideline directing a company to report expenses on the income statement in the same period as the related revenues they generated.

FIFO (First-In, First-Out)

An inventory cost flow assumption where the oldest inventory costs are transferred first into Cost of Goods Sold, leaving the most recent acquisition costs in ending inventory.

LIFO (Last-In, First-Out)

An inventory cost flow assumption where the most recent purchase costs flow into Cost of Goods Sold, leaving the oldest purchase costs in ending inventory.

Average Cost Method

An inventory costing method that allocates costs based on the weighted-average cost per unit of all goods available for sale during the period.

Lower of Cost or Market (LCM)

The valuation rule requiring inventory to be reported on financial statements at whichever is lower: historical cost or net realizable value (market value).

Accounts Receivable

Monetary asset claims against customers arising from selling goods or providing services on credit.

Allowance for Uncollectible Accounts

A contra-asset account paired with Accounts Receivable to reduce receivables to their estimated net realizable value.

Aging Method

An estimation approach for bad debt expense where unpaid customer invoices are categorized into past-due age cohorts and multiplied by specific historical default rates.

Write-Off

The formal accounting removal of a specific customer's uncollectible balance by debiting the Allowance for Uncollectible Accounts and crediting Accounts Receivable, resulting in no change to net accounts receivable.

Bad Debt Recovery

The process of re-establishing an account receivable and the related allowance account after a previously written-off balance is collected, followed by recording the cash receipt.

Gross Accounts Receivable

The total unadjusted claim against customers before deducting the allowance for uncollectible accounts ($\text{Gross AR} = \text{Net AR} + \text{Allowance for Uncollectibles}$).

Unearned Revenue

A liability account representing payments received from customers in advance of goods being delivered or services being rendered.

Trading Securities (TS)

Debt or equity investments acquired with the intent of actively buying and selling for short-term trading profits, carried at fair value with unrealized gains and losses reported in net income.

Available-for-Sale Securities (AFS)

Investments held for long-term value appreciation rather than immediate trading, reported at fair market value on the balance sheet with unrealized gains/losses flowing to Accumulated Other Comprehensive Income (AOCI).

Held-to-Maturity Securities (HTM)

Debt securities that management has both the positive intent and ability to hold until their contractual maturity date.

Order of Liquidity

The balance sheet presentation structure where assets are ordered based on how quickly they can be converted to cash and liabilities by how quickly they must be paid.

Cash from Investing (CFI)

A section of the statement of cash flows tracking cash transactions for long-term investments and productive assets, such as cash outflows for purchasing Property, Plant, and Equipment (PP&E).