Accounting Fundamentals — Assets, Liabilities, Equity & Reporting Entities (Vocabulary)

Vocabulary flashcards covering assets, liabilities, equity, and key reporting concepts from the lecture notes.

Asset

A resource owned by a business that is expected to bring future economic benefits (e.g., cash, land, buildings, inventory).

Cash

A liquid asset necessary to run a business; money on hand or in the bank.

Land

A fixed asset representing real estate used in a business’s operations.

Building

A fixed asset used to house business operations; part of property, plant, and equipment.

Inventory

Goods held for sale or for use in production.

Liability

An obligation or what you owe to others; debts and payables.

Loan

Borrowed money that creates a liability for the borrower.

Note payable

A loan evidenced by a promissory note; a formal liability.

Accounts payable

Short-term amounts owed to suppliers or vendors for goods/services received.

Stockholders' equity

The owners’ claim on assets after liabilities; composed of contributed capital and earned capital.

Earned capital

Equity from profits earned and retained in the business; also called retained earnings.

Retained earnings

Accumulated net income kept in the business after dividends; a component of stockholders’ equity.

Revenue

Income earned from business operations; increases retained earnings.

Expenses

Costs incurred in earning revenue; decrease retained earnings.

Net income

Revenues minus expenses; the profit that increases retained earnings.

Dividends

Distributions to shareholders; reduce retained earnings.

Sweat equity

Informal term for equity earned through hard work rather than external funding.

Contributed capital

Capital contributed by investors; increases stockholders’ equity.

Common stock

A form of contributed capital representing ownership in the company.

Nonprofit accounting

Accounting for charitable or nonprofit organizations; donations come from benefactors and are used for beneficiaries.

Financial accounting

Information prepared for external users about the overall financial health of a company (e.g., balance sheet, income statement, cash flow).

Managerial accounting

Information prepared for internal users (managers) to aid decision-making; often department- or project-focused.

External users

People outside the company who use financial accounting information (investors, creditors, brokers).

Internal users

People inside the company who use managerial accounting information (managers).

Accounting equation

Assets = Liabilities + Stockholders’ Equity.

Asset source

Event that increases assets due to a funding source (e.g., issuing stock, borrowing).

Asset use

Event that decreases assets (e.g., paying cash for expenses).

Asset exchange

Event where one asset is traded for another (e.g., cash for land).

Commingling of funds

Mixing personal and business funds; can be illegal and problematic for accounting.

Balance sheet

Financial statement showing assets, liabilities, and stockholders’ equity at a point in time.

Income statement

Financial statement showing revenues and expenses over a period, resulting in net income or loss.

Beginning balances

Opening balances at the start of an accounting period.