Introduction to Financial Accounting Flashcards

Vocabulary practice flashcards covering introductory accounting concepts, financial statements, business activities, and user types based on Chapter 1 lecture notes.

Internal User

A person inside a company, such as a manager, director, or supervisor, who uses financial information to answer questions relevant to their job.

External User

A person or entity outside a company, such as an investor, creditor, or government authority (e.g., the IRS), that uses financial statements to make investing decisions, evaluate lending risk, or ensure regulatory compliance.

Descriptive Analytics

A data analytics method focused on gaining an understanding of what is going on using provided data.

Diagnostic Analytics

A data analytics method aimed at understanding data patterns and making inferences about what will happen in the future.

Predictive Analytics

An advanced data analytics method using regression and other analytical techniques to make predictions for future data.

Prescriptive Analytics

A data analytics method that prescribes a specific course of action or method to be used in the future.

Sarbanes-Oxley Act (SOX)

Federal legislation passed in the early 2000s following major corporate accounting scandals to enforce accounting rules, require top management certification of financial statements, increase penalties for fraud, and ensure outside auditor independence.

Financing Activities

Business activities involving raising money from outside sources, either by borrowing money/issuing bonds (debt financing) or issuing stock (equity financing).

Investing Activities

Business activities involving the purchase of resources or assets needed for operations, such as equipment, land, or machinery.

Operating Activities

Day-to-day business operations involved in producing and selling goods or providing services, generating revenues and incurring expenses.

Assets

Resources owned by a business, such as cash, inventory, accounts receivable, equipment, land, and prepaid insurance.

Liabilities

Amounts owed by a business to creditors in the form of debt and other obligations, such as accounts payable, notes payable, and unearned revenue.

Stockholders' Equity

The owners' claim to assets, composed of common stock and retained earnings.

Revenues

The increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business.

Expenses

The cost of assets consumed or services used in the process of generating revenues.

Dividend

A distribution of cash from a corporation to its stockholders representing a share of earnings; it is not classified as an expense.

Income Statement

A financial statement prepared for a span of time that measures a company's profitability using the formula $\text{Revenues} - \text{Expenses} = \text{Net Income}$.

Retained Earnings Statement

A financial statement prepared for a span of time showing how much net income was distributed as dividends and how much was kept for future growth using the formula $\text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends} = \text{Ending Retained Earnings}$.

Balance Sheet

A financial statement prepared for a single date (point in time) that presents a snapshot of a business's assets, liabilities, and stockholders' equity.

Statement of Cash Flows

A financial statement prepared over a span of time that details cash receipts and payments categorized by operating, investing, and financing activities.

Accounts Receivable

An asset account representing amounts owed to the company by customers who purchased goods or services on credit.

Prepaid Insurance

An asset account representing insurance coverage paid for in advance that has not yet been consumed or expired.

Accounts Payable

A liability account representing short-term obligations owed by the company to vendors for goods or services received on credit.

Unearned Service Revenue

A liability account representing cash received from customers in advance of services being performed.

Common Stock

The total dollar amount paid into a corporation by stockholders in exchange for ownership shares.

Cost of Goods Sold

An expense account representing the cost of inventory that a company purchased and subsequently sold.

Basic Accounting Equation

The foundational mathematical rule of financial accounting stating that $\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$.

Management Discussion and Analysis (MD&A)

A section of an annual report where management provides qualitative commentary on the company's performance, liquidity, and ability to fund operations.

Notes to the Financial Statements

Explanatory footnotes in an annual report that clarify the financial statements and provide additional details regarding specific balances.

Auditor's Report

A section of an annual report prepared by independent outside auditors expressing an opinion on the fairness of the presentation of the financial statements.