Financial Accounting - Chapters 1 & 2 Flashcards

Vocabulary practice flashcards covering Chapters 1 and 2 of Financial Accounting, based directly on the provided lecture notes and diagrams.

Financial Accounting

The process of measuring a company's business activities and communicating those measurements to external decision-makers such as investors and creditors.

Accounting Information Flow

The sequence of recording financial data: Business Activity $\rightarrow$ Journal Entry (JE) $\rightarrow$ Post JE to General Ledger (GL) $\rightarrow$ Trial Balance (TB) $\rightarrow$ Financial Statements (FS).

Chart of Accounts

A list of all account names used to record the financial transactions of a company.

Journal Entry

The standard format used to record a transaction, including the date, affected accounts, debit and credit amounts, and a brief description.

General Ledger (GL)

A detailed record of all transaction activity and balances for each individual account over a period of time.

Trial Balance (TB)

A summary list of all accounts in the general ledger and their final balances at a specific point in time, used primarily to verify that total debits equal total credits.

Basic Accounting Equation

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

Expanded Accounting Equation

The detailed equation showing that $\text{Assets} = \text{Liabilities} + \text{Common Stock} + \text{Revenues} - \text{Expenses} - \text{Dividends}$.

DEALOR Rules Diagram

A rule structure where Dividends, Expenses, and Assets (DEA) increase with a Debit and decrease with a Credit, while Liabilities, Owners' Equity, and Revenue (LOR) increase with a Credit and decrease with a Debit.

Income Statement

A financial report comparing revenues and expenses over a period of time to measure profitability ($\text{Revenues} - \text{Expenses} = \text{Net Income}$ or Net Loss).

Balance Sheet

A financial report showing a company's assets, liabilities, and stockholders' equity at a specific point in time.

Statement of Stockholders' Equity

A financial statement summarizing changes in common stock and retained earnings due to net income and dividends over a period of time.

Statement of Cash Flows

A financial statement reporting cash inflows and cash outflows categorised into operating, investing, and financing activities over a period of time.

Financial Statement Interconnections

The flow where Net Income from the Income Statement feeds into Retained Earnings on the Statement of Stockholders' Equity, which then links to Stockholders' Equity on the Balance Sheet, while ending cash from the Statement of Cash Flows matches cash on the Balance Sheet.

Accounting Regulatory Infrastructure

The ecosystem comprising government oversight (SEC), rules setting for GAAP (FASB), statutory accountability (SOX), and inspector oversight of auditors (PCAOB).

SEC (Securities and Exchange Commission)

The federal agency providing government oversight for financial reporting, acting as the regulator/police of capital markets.

FASB (Financial Accounting Standards Board)

The independent body responsible for establishing Generally Accepted Accounting Principles (GAAP) in the United States.

SOX (Sarbanes-Oxley Act)

Federal law establishing strict legal accountability and internal governance requirements for corporate financial reporting.

PCAOB (Public Company Accounting Oversight Board)

The regulatory entity established to inspect and regulate independent public accounting firms and auditors.

Deferred Revenue

A liability account created when cash is received in advance from customers before the company provides the associated services or goods.

Materiality

The concept that the financial magnitude of an item may not justify the cost of recording it if it would not influence decision-makers.

Going Concern

The accounting assumption that a business entity will continue operating indefinitely and is not at immediate risk of liquidation.

Form 10-K

An annual comprehensive financial report filed by public companies with the SEC for investors and regulators.

Eagle Soccer Academy Transaction Summary Table

A tabular breakdown of 10 initial business transactions demonstrating how individual debits and credits affect accounting equation components while keeping assets equal to liabilities plus equity at $\$360,000$.