Week 3 Income Statements

A collection of flashcards covering key concepts and vocabulary from the Principles of Financial Accounting lecture, focusing on accounting standards, concepts, and income statements.

International Financial Reporting Standards (IFRS)

A set of accounting standards formulated by the International Accounting Standards Board (IASB) to make financial reporting understandable and comparable globally.

Conceptual Framework for Financial Reporting (CFFR)

A framework developed by the IASB to ensure that accounting information is relevant and faithfully represents the financial position of a business.

Accrual Basis

An accounting method where revenue and expenses are recorded when they are earned and incurred, regardless of when cash transactions occur.

Business Entity Concept

An accounting principle where a business is treated as a separate legal entity from its owners for financial reporting purposes.

Going Concern Assumption

The assumption that a business will continue to operate for the foreseeable future unless there is evidence to the contrary.

Prudence

The accounting concept that requires revenues and gains to be recognized only when they are realized or assured, and losses to be recognized as soon as they are probable.

Cost of Goods Sold (COGS)

The direct costs attributable to the production of the goods sold by a company, calculated as: Opening stock + Purchases - Closing stock.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating the basic profitability of a business's core activities.

Revenue Recognition

The accounting principle determining the specific conditions under which income becomes recognized as revenue.

Expense

The outflow of economic benefits resulting from the ordinary operations of a business, typically leading to a decrease in assets or an increase in liabilities.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, recognizing its decrease in value due to wear, tear, or obsolescence.

Amortization

The systematic reduction of the value of an intangible asset or the repayment of a debt over a period of time.

Journal Entry

The first step in the accounting cycle, recording a financial transaction in accounting journals, typically showing debits and credits.

General Ledger

A complete record of all the financial transactions of a company, containing all the accounts used to record a company's financial activities.

Trial Balance

A list of all the general ledger accounts (both revenue and capital) contained in the ledger of a business, showing the balance of each account at a particular date.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.

Current Liabilities

Obligations that are expected to be settled within one year or the operating cycle, whichever is longer.

Double-Entry Bookkeeping

An accounting system where every financial transaction is recorded in at least two accounts, with at least one debit and one credit, ensuring assets always equal liabilities plus equity.

Accounting Equation

The fundamental principle of accounting: Assets = Liabilities + Equity.

Fiscal Year

A 12-month period that an organization uses for budget and accounting purposes, varying from the calendar year.

Statement of Cash Flows

A financial report detailing a company's cash inflows and outflows, classifying them as operating, investing, or financing activities over a specific accounting period.

Working Capital

The net difference between a company's current assets and current liabilities, serving as a key indicator of its short-term financial health and liquidity.

Retained Earnings

The cumulative amount of net income kept by a company rather than distributed to shareholders as dividends, typically reinvested in the business.

Capital Expenditure (CapEx)

Funds utilized by a company to acquire, enhance, or maintain long-term physical assets such as property, plant, and equipment.

Accounts Receivable

Amounts due to a business from its customers for goods or services delivered on credit.

Accounts Payable

Amounts a business owes to its suppliers for goods or services purchased on credit.

Matching Principle

An accrual accounting principle requiring that expenses be recognized in the same accounting period as the revenues they helped to generate.

Debit

An entry made on the left side of an account in double-entry bookkeeping, generally increasing asset and expense accounts, and decreasing liability, equity, and revenue accounts.

Credit

An entry made on the right side of an account in double-entry bookkeeping, generally increasing liability, equity, and revenue accounts, and decreasing asset and expense accounts.

Chart of Accounts

A comprehensive listing of all financial accounts used by an organization, typically categorized by elements such as assets, liabilities, equity, revenues, and expenses.

Monetary Unit Assumption

An accounting principle stating that only transactions that can be expressed in monetary terms are recorded in the financial statements.

Time Period Assumption

An accounting principle that assumes the economic life of a business can be divided into artificial time periods (e.g., months, quarters, years) for financial reporting.

Full Disclosure Principle

The accounting principle that requires a company to report all information that would affect a reader's understanding of the financial statements.

Book Value

The value of an asset as recorded on the balance sheet, calculated as its original cost less any accumulated depreciation or amortization.

Goodwill

An intangible asset representing the excess of the purchase price over the fair market value of the identifiable net assets acquired in a business combination.

Earnings Per Share (EPS)

A financial ratio that indicates the portion of a company's profit allocated to each outstanding share of common stock.

Liquidity

The ease with which an asset can be converted into cash without affecting its market price, indicating a company's ability to meet short-term obligations.

Solvency

The ability of a company to meet its long-term financial obligations and continue to operate, indicating its long-term financial health.

Net Income

A company's total earnings (or profit) calculated by subtracting total expenses (including taxes) from total revenues, representing the 'bottom line' of the income statement.

Equity

The total value of ownership in a business, representing the assets remaining after all liabilities are paid; it includes capital contributed by owners and retained earnings.

Balance Sheet

A fundamental financial statement presenting a company's financial health on a specific date, outlining its assets, liabilities, and shareholders' equity according to the accounting equation.