Chapter 1-8: Basic Accounting Concepts (Video Notes)

Vocabulary flashcards covering key terms and definitions from the video notes on chapter 1 through 8, focusing on foundational accounting concepts, the basic equation, and the roles of users, assets, liabilities, and equity.

Accounting

An information system that reports on a business's economic activities and financial condition.

Language of business

Accounting communicates a business's stories through numbers and accounts.

Financial accounting

Accounting information prepared for external users such as banks and investors.

Tax accounting

Accounting for reporting to the government to determine taxes owed.

Managerial accounting

Accounting information used by internal users (managers) to assist decision-making.

Internal users

People inside a business (e.g., managers, employees) who use accounting information.

External users

People outside a business (e.g., banks, investors) who use accounting information.

Asset

An economic resource expected to produce revenue or provide a future benefit.

Liability

An obligation to repay money or provide goods/services; a creditor’s claim against assets.

Stockholders’ equity / Owners’ equity

The owners’ claim on assets after liabilities; composed of common stock and retained earnings.

Common stock

Ownership shares in a company; evidence of stockholders’ ownership.

Retained earnings

Earnings kept in the business to reinvest or to fund future activities; part of stockholders’ equity.

Revenue

Income from providing goods or services; increases retained earnings via net income.

Expenses

Costs incurred to earn revenue; decrease retained earnings.

Dividends

Distributions of earnings to stockholders; reduce retained earnings.

Net income

Revenue minus expenses.

Net loss

When expenses exceed revenue.

GAAP

Generally Accepted Accounting Principles; the set of rules for U.S. financial reporting.

FASB

Financial Accounting Standards Board; the body that establishes GAAP.

IFRS (IFERS)

International Financial Reporting Standards; accounting framework used by many countries.

Not-for-profit

An organization not primarily guided by profit generation.

Basic accounting equation

Assets = Liabilities + Stockholders’ Equity.

Notes payable

A written promise to pay a specific amount; a liability.

Liquidation

Winding down a business and settling claims in a defined order.

Liquidation order

Creditors are paid first; stockholders receive remaining assets, if any.

Asset source

Transactions that increase assets and increase claims (liabilities or equity).

Asset use

Transactions that decrease assets and decrease claims.

Asset exchange

Transactions that increase one asset and decrease another.

Horizontal financial statement model

A layout where each transaction is recorded so that the basic accounting equation remains balanced across the horizontal structure.

Historical cost concept

Assets are recorded at their original cost, not adjusted to current market value.

Creditor

An entity that lends money or extends credit to a business.

Investor

An individual or institution that provides capital in exchange for ownership (stock).