FIN 104 - Understanding Financial Statements Vocabulary

Comprehensive vocabulary flashcards covering major accounting terms, financial statement elements, and definitions from FIN 104 Chapter 1.

Financial Statements

Structured reports that summarize the financial activities and financial condition of a business, transforming accounting records into information for decision-making.

Statement of Financial Position

Commonly called the Balance Sheet, a financial statement presenting the financial position of a business at a specific date, computed as $\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$.

Assets

Economic resources controlled by the business as a result of past events and from which future economic benefits are expected.

Liabilities

Present obligations of the business arising from past events, the settlement of which is expected to require the transfer of economic resources.

Shareholders' Equity

The residual interest of the owners in the assets of the corporation after deducting liabilities, represented as $\text{Shareholders' Equity} = \text{Assets} - \text{Liabilities}$.

Current Assets

Assets expected to be realized, sold, consumed, or converted into cash within the normal operating cycle or relatively soon.

Cash and Cash Equivalents

Money that is immediately available for business use, including cash on hand, cash in banks, and qualifying highly liquid short-term investments.

Accounts Receivable

Amounts owed by customers who purchased goods or services on credit, representing sales already recognized but not yet collected in cash.

Allowance for Doubtful Accounts

An estimated amount of accounts receivable that may not be collected from customers, which reduces Accounts Receivable to the amount expected to actually be collected.

Merchandise Inventory

Goods held by the business for resale, which become an expense called Cost of Goods Sold when sold.

Marketable Securities

Investments that can generally be bought and sold readily, used by businesses to invest temporarily available funds to earn returns.

Prepaid Expenses

Payments made in advance for goods or services that will benefit future periods, classified initially as assets because the benefit has not yet been fully consumed.

Noncurrent Assets

Resources that are generally expected to provide benefits beyond the current period.

Property and Equipment

Tangible assets used in business operations rather than held for resale, whose cost is normally allocated over their useful lives through depreciation.

Accumulated Depreciation

A contra-asset account representing the total depreciation recognized on a depreciable asset from the time it was acquired up to the reporting date, where $\text{Property and Equipment} - \text{Accumulated Depreciation} = \text{Net Property and Equipment}$.

Current Liabilities

Obligations expected to be settled within the normal operating cycle or within the short term.

Accounts Payable

Amounts owed to suppliers for goods or services purchased on credit.

Accrued Expenses and Other Payables

Expenses or obligations already incurred but not yet paid, such as salaries payable and utilities payable.

Noncurrent Liabilities

Obligations that are generally not expected to be settled within the short term.

Bonds Payable

Long-term debt securities issued by a corporation to obtain financing from investors, establishing an obligation to repay principal and make interest payments.

Share Capital

Contributed capital representing amounts invested by shareholders in exchange for ownership shares in the corporation.

Retained Earnings

Accumulated profits of the corporation that have not been distributed to shareholders as dividends.

Statement of Financial Performance

Commonly called the Income Statement, a financial report detailing company performance over a period of time to determine if a profit or loss was generated.

Revenue

Income arising from the ordinary activities of the business, such as Sales Revenue, which increases profit and shareholders' equity.

Expenses

Decreases in economic benefits resulting from the consumption of resources or the incurrence of obligations in generating revenue.

Cost of Goods Sold

The cost of inventory that has actually been sold to customers, transitioning from an asset to an expense upon sale.

Gross Profit

The amount remaining after deducting Cost of Goods Sold from Sales Revenue, expressed as $\text{Sales Revenue} - \text{Cost of Goods Sold} = \text{Gross Profit}$.

Operating Expenses

Costs incurred in carrying out the normal activities of the business, including salaries, rent, utilities, depreciation, and administrative costs.

Net Income

The financial outcome achieved when total income exceeds total expenses over a given period.

Net Loss

The financial outcome experienced when total expenses exceed total income over a given period.

Statement of Cash Flows

A report explaining the cash received and cash paid by a business during a period, categorized into operating, investing, and financing activities.

Operating Activities

Cash flow activities relating to the principal revenue-producing day-to-day operations of the business.

Investing Activities

Cash flow activities involving the acquisition and disposal of long-term assets and investments.

Financing Activities

Cash flow activities involving transactions that alter the size and composition of the company's equity and borrowings.

Statement of Changes in Shareholders' Equity

A financial statement explaining changes in the owners' interest in the corporation during an accounting period.

Dividends

Distributions of corporate earnings to shareholders that reduce retained earnings rather than net income and are not classified as expenses.