Accounting and Financial Management Unit 1-3

This set of flashcards covers vocabulary and key concepts from Units 1, 2, and 3 of the AGSM MBA Accounting and Financial Management program, focusing on the nature of accounting, financial statements, and accrual principles.

Accounting

The process of recording, classifying, and communicating financial information about the economic activity of an enterprise.

Financial Accounting

The branch of accounting geared toward providing information to users outside of the firm, such as investors and creditors.

Management Accounting

An internal area of accounting used by managers for planning, controlling, and decision-making purposes, often involving product costs and budgets.

Accrual Accounting

A system where the impact of transactions is recognized in the time periods when revenues and expenses occur, rather than when the cash is received or paid.

Cash Accounting

Recording revenues and expenses only at the time the cash is actually received or paid.

The Accounting Equation

The fundamental formula that states: $\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$

Assets

Future economic benefits controlled by an organization as a result of past transactions (e.g., cash, receivables, inventory, property).

Liabilities

Future sacrifices of economic benefits that an organization is presently obliged to make to other entities as a result of past transactions or events.

Shareholders' Equity

The residual claim of the owners on the assets of the organization, calculated as the excess of assets over liabilities.

Balance Sheet

A financial statement showing a firm's financial position (assets, liabilities, and equity) at a specific point in time.

Income Statement

A financial statement that measures profitability over a defined period by matching revenues against the expenses incurred to earn them.

Statement of Cash Flows

A statement that depicts the sources and uses of cash during a period, categorized into operating, investing, and financing activities.

GAAP

An abbreviation for Generally Accepted Accounting Principles, the combination of authoritative standards and practices companies follow for financial reporting.

Relevance

A qualitative characteristic of financial information that can make a difference to the decision at hand by helping users make predictions or confirm past evaluations.

Faithful Representation

The requirement that financial statements report the economic substance of events and that numbers measure those events neutrally and without error.

Going Concern

The assumption that an accounting entity will continue to operate for the foreseeable future rather than being liquidated.

Historic Cost

A concept where assets are initially recorded at their original acquisition price.

Materiality

A significance concept used to judge whether the omission or misstatement of information would affect the decisions of users.

Consolidated Accounts

Financial statements that combine the revenue, expenses, assets, and liabilities of a parent company and its controlled subsidiaries into a single entity.

Depreciation

The process of allocating the cost of a tangible asset over its estimated useful life to match expenses with the revenue generated by that asset.

Amortisation

The systematic write-off of the cost of an intangible asset as an expense over its useful life.

Intangible Assets

Long-term assets without visible physical existence, such as patents, trademarks, brand names, and software.

Purchased Goodwill

The excess of the purchase price of a business over the fair value of its identifiable net assets.

Unearned Revenue

A liability representing cash received from a customer for goods or services that have not yet been delivered or performed.

Prepayments

Current assets arising from expenditures that have value extending into future periods, such as insurance premiums paid in advance.

FIFO (First In First Out)

An inventory cost flow assumption that the first items purchased or produced are the first items sold.

LIFO (Last In First Out)

An inventory cost flow assumption that the most recently purchased items are the first sold; it is not permitted for tax or accounting purposes in Australia.

Allowance for Doubtful Debts

A contra asset account that reduces the book value of accounts receivable to reflect the amount management estimates will be uncollectable.

Sarbanes-Oxley Act 2002

U.S. legislation passed after major scandals like Enron to establish enhanced standards for public company boards, corporate governance, and auditors.

Straight-line Depreciation

A method that spreads the cost of an asset evenly across its useful life, calculated as: $\frac{\text{Cost} - \text{Salvage value}}{\text{Useful life}}$

Reducing Balance Depreciation

An accelerated method where depreciation is calculated as a fixed percentage of the net book value at the beginning of the period.