ACC 340 Shields Chapter 2 – Accounting Basics (Vocabulary Flashcards)

A collection of vocabulary flashcards covering core concepts from the Accounting Information System notes, including the accounting equation, financial statements, accounts, adjusting entries, and cash flow methods.

Assets

Economic resources controlled by the entity expected to provide future benefits.

Liabilities

Obligations arising from past transactions; present debts to third parties.

Shareholders' Equity

Owner's claim on assets; includes common stock, additional paid-in capital, and retained earnings.

Balance Sheet

Financial statement showing assets, liabilities, and shareholders' equity at a point in time.

Current Assets

Assets expected to be converted to cash or used within one year.

Noncurrent Assets

Long-term assets not expected to be converted to cash within one year.

Current Liabilities

Obligations due within one year.

Noncurrent Liabilities

Long-term obligations not due within a year.

Assets = Liabilities + Shareholders’ Equity

The fundamental accounting equation expressing that resources are financed by creditors and owners.

Revenue

Income earned from delivering goods or services.

Expenses

Costs incurred to generate revenue.

Gross Profit

Sales revenue minus cost of goods sold.

Net Income

Revenue minus expenses; the bottom line of the income statement.

Cost of Goods Sold (COGS

Direct costs of producing goods or services sold.

Operating Income

Gross profit minus operating expenses (selling, general, and administrative).

Accrual Basis

Revenue recognized when earned and expenses recognized when incurred, regardless of cash flow.

Cash Basis

Revenue recognized when cash is received and expenses recognized when cash is paid.

Adjusting Entries

End-of-period entries to align revenues and expenses with the proper period.

Deferrals

Cash has moved, but revenue or expense is recognized in a later period (prepaid expenses, unearned revenue).

Accruals

Revenue or expense recognized now, but cash will be received or paid later (accrued revenues/expenses).

Permanent (Real) Accounts

Accounts that remain open year to year on the balance sheet.

Temporary (Nominal) Accounts

Accounts closed at year-end, mainly on the income statement.

Adjunct Accounts

Support accounts whose balance is added to the primary account.

Contra Accounts

Accounts that offset the balance of a related account (e.g., accumulated depreciation).

Accumulated Depreciation

Contra-asset representing total depreciation taken on property, plant, and equipment.

Inventory

Goods held for sale; a current asset.

Accounts Receivable

Amounts billed to customers for goods or services yet to be collected.

Prepaid Insurance

Asset representing payments made before the insurance coverage period.

Notes Payable

Written promissory note promising to pay a debt.

Common Stock

Par or stated value of issued shares of the company.

Additional Paid in Capital

Amount paid by investors above the par value of the stock.

Retained Earnings

Cumulative net income retained in the business, not distributed as dividends.

Dividends

Distributions to shareholders reducing retained earnings.

Unearned Revenue

Liability for cash received before revenue is earned.

Service Revenue

Revenue earned from providing services.

Sales Revenue

Revenue earned from selling goods or services (often interchangeable with revenue in practice).

Interest Expense

Cost of borrowing; finance-related expense.

Interest Revenue

Interest earned on investments or loans receivable.

Depreciation

Systematic allocation of the cost of a tangible asset over its useful life.

Rent Expense

Operating expense for using property or facilities.

Salaries and Wages Expense

Expense representing employee compensation costs.

Utilities Expense

Expense for utilities used in operations.

Wages Payable

Liability representing wages earned but not yet paid.

Journal Entry

Formal recording of a transaction with debits and credits.

T-Accounts

Visual representation of individual accounts used to post transactions.

Closing Entries

Entries that reset temporary accounts to zero and transfer results to retained earnings.

Income Summary

Temporary account used to summarize revenues and expenses during closing.

Reversing Entries

Optional entries made after closing to simplify next period’s accounting.

Cash Flows (Direct Method)

Statement of cash flows method showing major classes of cash receipts and payments.

Cash Flows (Indirect Method)

Statement of cash flows method starting with net income and adjusting noncash items.

Operating Activities

Cash flows related to primary revenue-generating activities.

Investing Activities

Cash flows from the acquisition and disposal of long-term assets and investments.

Financing Activities

Cash flows from borrowings, debt repayments, issuing stock, and dividends.

Chart of Accounts

Structured list of all accounts used by an entity in its accounting system.

Trial Balance

Listing of all accounts with balances to verify that total debits equal total credits.

Deferred Revenue

Another term for unearned revenue; a liability representing cash received before revenue is earned.