Introduction to Accounting and Financial Statements

Vocabulary flashcards covering fundamental accounting terms, principles, equations, and financial statement concepts from Chapters 1 through 7.

Transaction

An event such as purchasing equipment, buying office supplies, or performing services for cash or on account that involves an exchange of monetary value; hiring an employee without exchanging money is not a transaction.

Accounting Equation

The foundational equality in accounting stating that total assets must equal total liabilities plus equity ($\text{Assets} = \text{Liabilities} + \text{Equity}$).

Assets

Economic resources controlled by a business that are expected to provide future economic benefits, such as cash, accounts receivable, inventory, office supplies, furniture, computers, and land.

Liabilities

Debts or obligations owed by a business to outside entities or individuals, including accounts payable, notes payable, and salaries payable.

Accounts Payable

Short-term liabilities arising from purchasing goods or services on credit, typically due within $30$ days and carrying no interest charge.

Notes Payable

Formal obligations representing borrowed money or extended credit for a specific duration, requiring repayment of the principal amount along with interest.

Salaries Payable

A liability account representing amounts earned by employees up to a specific date that have not yet been paid out by the business.

Equity

The owners' claim on the assets of a business, consisting of contributed capital and retained earnings.

Contributed Capital

The total cash or other assets (such as land) contributed to a business by owners or investors in exchange for corporate stock.

Common Stock

The primary form of corporate ownership that provides shareholders with voting rights at annual meetings and the right to receive dividends when declared.

Retained Earnings

The cumulative total of net income earned by a business since its inception, minus all dividends distributed to stockholders.

Revenues

Inflows of assets resulting from selling goods or providing services to customers, which increase equity.

Expenses

The costs incurred in the process of generating revenue, such as rent or salaries, which decrease equity.

Net Income

The positive difference that occurs when total revenues exceed total expenses ($\text{Revenues} > \text{Expenses}$) for an accounting period.

Net Loss

The negative difference that occurs when total expenses exceed total revenues ($\text{Expenses} > \text{Revenues}$) for an accounting period.

Accrual Basis of Accounting

A GAAP-mandated accounting system in which revenues are recognized when earned and expenses are recognized when incurred, regardless of when cash is received or paid.

Cash Basis Accounting

An accounting method where revenues and expenses are recorded only when cash actually changes hands, which does not follow GAAP.

Accounts Receivable

An asset account representing money promised to be paid by customers within a short period (e.g., $30$ days) for services or goods provided on credit.

Income Statement

A financial report showing profitability over a specific period of time by calculating total revenues minus total expenses.

Balance Sheet

A financial report listing a business's assets, liabilities, and equity as of a single, specific date.

Statement of Cash Flows

A financial report listing cash inflows and outflows during a period, categorized into operating, investing, and financing activities.

Return on Assets

A financial ratio measuring overall business efficiency, calculated as net income divided by average total assets ($\frac{\text{Net Income}}{\text{Average Total Assets}}$).

Average Total Assets

The average value of a company's total assets over a period, calculated as beginning assets plus ending assets divided by two ($\frac{\text{Beginning Total Assets} + \text{Ending Total Assets}}{2}$).