Financial Accounting C2 Vocabulary

accounting equation

assets = liabilities + owner’s equity

accounts payable

value of goods or services purchased that will be paid for at a later date

accounts receivable

outstanding customer debt on a credit sale, typically receivable within a short time period

accrual basis accounting

accounting system in which revenue is recorded or recognized when earned yet not necessarily received, and in which expenses are recorded when legally incurred and not necessarily when paid

asset

tangible or intangible resource owned or controlled by a company, individual, or other entity with the intent that it will provide economic value

balance sheet

financial statement that lists what the organization owns (assets), owes (liabilities), and is worth (equity) on a specific date

cash basis accounting

method of accounting in which transactions are not recorded in the financial statements until there is an exchange of cash

common stock

corporation’s primary class of stock issued; with each share representing a partial claim to ownership or a share of the company’s business

comprehensive income

change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources

corporation

legal business structure involving one or more individuals (owners) who are legally distinct (separate) from the business

current asset

asset that will be used or consumed in one year or less

current liability

debt or obligation due within one year or, in rare cases, a company’s standard operating cycle, whichever is greater

current ratio

current assets divided by current liabilities; used to determine a company’s liquidity (ability to meet short-term obligations)

dividend

portion of the net worth (equity) that is returned to the owners of a corporation as a reward for their investment

equity

residual interest in the assets of an entity that remains after deducting its liabilities

expense

cost associated with providing goods or services

gain

increase in organizational value from activities that are “incidental or peripheral” to the primary purpose of the business

income statement

financial statement that measures the organization’s financial performance for a given period of time

initial public offering

when a company isses shares of stock to the public for the first time

intangible asset

asset with financial value but no physical presence

inventory

value of products to be sold or items to be converted into sellable products

investment by owner

exchange of cash or other assets in exchange for an ownership interest in the organization

liability

probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

liquidity

ability to convert assets into cash in order to meet primarily short-term cash needs or emergencies

long-term asset

asset used ongoing in the normal course of business for more than one year that is not intended to be resold

long-term liability

debt settled outside one year or one operating cycle, whichever is longer

net income

whenever revenues and gains are greater than expenses and losses

net loss

when expenses and losses are greater than revenues and gains

noncurrent asset

asset that will be used or consumed over more than one year

noncurrent liability

liability that is expected to be settled in more than one year

notes payable

value of amounts borrowed that will be paid in the future with interest

notes receivable

value of amounts loaned that will be received in the future with interest

publicly traded company

company whose stock is traded (bought and sold) on an organized stock exchange

retained earnings

cumulative, undistributed net income or net loss for the business since its inception

securities and exchange commission

federal regulatory agency that regulates corporations with shares listed and traded on security exchanges through required periodic filings

short-term asset

asset typically used up, sold, or converted to cash in one year or less

short-term liability

liability typically expected to be paid within one year or less

statement of cash flows

financial statement listing the cash inflows and cash outflows for the business for a period of time

statement of owner’s equity

financial statement showing how the equity of the organization changed for a period of time

tangible asset

asset that has a physical substance

working capital

current assets less current liabilities; sometimes used as a measure of liquidity