Accounting Basics and Financial Statements (Video Notes)

Vocabulary flashcards covering key accounting concepts, roles, financial statements, and fundamental principles from the lecture notes.

Accounting

The process of recording, summarizing, analyzing, classifying, and reporting financial transactions and events, and interpreting the results.

Luca Pacioli

He is regarded as the Father of Accounting for documenting the double-entry bookkeeping system.

Bookkeeping

Systematic and chronological recording of business transactions.

Recording

Writing down business transactions in the official book of accounts.

Financial statements

The three main reports: Balance Sheet, Income Statement, and Statement of Cash Flows.

Balance Sheet

Statement of financial position showing a business’s condition at a given date, including assets, liabilities, and owner’s equity.

Income Statement

Statement of the results of operations (revenues and expenses) for a period.

Statement of Cash Flows

Report of the cash resources and cash uses of the business over a period.

Internal users

People inside a company who plan, organize, and run the business.

External users

People outside a company who want financial information.

Investors

Owners who use accounting information to decide to buy, hold, or sell shares.

Creditors

Entities such as suppliers or bankers who evaluate credit or lending risk.

Financial Accounting

Provides information for people outside the firm and must meet standards of relevance and reliability.

Management Accounting

Generates information for managers inside the company; not required to meet external standards.

Hospitality management accounting

Specialized internal information for hospitality managers to direct and control operations.

Proprietorship

A business form with a single owner (the proprietor).

Partnership

A business form with two or more owners.

Limited-liability company (LLC)

A form where a partner’s liability is limited so as not to create large liability for other partners.

Corporation

A business owned by stockholders with a board of directors, stock, and officers (CEO/COO).

Stockholders

Owners who elect the board of directors.

Board of Directors

Group that sets policy and appoints officers; elects a chairperson.

Chief Executive Officer (CEO)

Top executive, often the chair or leader of the company.

Chief Operating Officer (COO)

Executive responsible for the day-to-day operations; often the president also serves as COO.

Basic Accounting Equation

Assets = Liabilities + Owner’s Equity.

Assets

Economic resources expected to benefit future operations; can be monetary (e.g., cash, accounts receivable) or nonmonetary (e.g., land, buildings, equipment).

Liabilities

Present obligations to pay cash, transfer assets, or provide services in the future.

Owner’s Equity

Claims by the owner to the company’s assets; also called equity; equals Assets minus Liabilities.

Revenue

An inflow of assets received in exchange for goods or services provided.

Expenses

Outflow of assets consumed to generate revenue.

Transactions (Business Transactions)

Economic events recorded by accountants.

External Transactions

Economic events between the company and outside entities.

Internal Transactions

Economic events that occur entirely within one company.

GAAP

Generally Accepted Accounting Principles.

Accrual

Record transactions when they occur, not when cash moves.

Consistency

Use the same accounting methods over time.

Going Concern

Assume the business will operate over the long term.

Matching

Match expenses to the revenues they help generate.

Revenue Recognition

Record revenue when earned, not when cash is received.

Conservatism

Recognize losses early; gains only when certain.

Double-Entry Bookkeeping

Every transaction affects at least two accounts (Debit & Credit).

Accounts Receivable

Monetary asset representing money customers owe to the company.

Inventories

Goods held for sale.

Patents, Trademarks, and Copyrights

Intangible assets; nonphysical rights owned by the company.

Owner’s Equity Statement

Summarizes changes in owner’s equity for a specific period.

Monetary assets

Assets that are cash or cash equivalents and other items that can be measured in monetary terms.

Nonmonetary assets

Physical or noncash assets like land, buildings, and equipment.