Accounting Cycle Overview

These flashcards cover key concepts and terminology related to the accounting cycle, financial reporting, and key principles of accounting.

Assets

Resources owned by a firm that provide future economic benefits.

Liabilities

Obligations or debts that a firm owes to creditors.

Equity

The residual interest in the assets of the firm after deducting liabilities; represents ownership by investors.

Accrual Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.

Trial Balance

A report that lists the balances of all accounts at a particular point in time to ensure that debits equal credits.

Revenue Recognition Principle

The guideline that dictates how revenue is recognized in financial statements, which is when earned, not necessarily when cash is received.

Deferred Revenue

Payments received in advance for goods or services that are to be delivered later.

Inventory Risk

The risk associated with having unsold inventory or obsolescence of inventory.

Accounts Receivable

Money owed to a company by its customers for goods or services delivered.

PPE (Property, Plant, and Equipment)

Tangible long-term assets that a company uses in its operations to generate income.

Impairment

A reduction in the carrying value of an asset when its fair value falls below its book value.

Intangible Assets

Non-physical assets that confer specific advantages to a company, such as patents, copyrights, and trademarks.

Contingencies

Possible future events that may have financial implications, depending on their occurrence.

Closing Entries

Adjustments made at the end of an accounting period to transfer temporary account balances to permanent accounts.

Statement of Cash Flows

A financial statement that provides information about the cash inflows and outflows of a company during a specific period.

Liquidity

The ability of a company to meet its short-term obligations as they come due.

Solvency

The ability of a company to meet its long-term obligations.

Fair Value

The estimated market value of an asset based on current market conditions.

Historical Cost

The original monetary value of an asset at the time of purchase.

GPM (Gross Profit Method)

An estimation method used to determine gross profit based on historical percentages.

Comparability

The ability to compare financial statements of different companies or periods.

Disclosure Requirements

Obligations to provide additional information in financial statements to inform users of significant aspects.