Financial Reporting Mechanics and Analysis

Vocabulary practice flashcards covering core accounting mechanics, financial statement elements, transaction recording, accruals, inventory and expense recognition, earnings per share (EPS), financial reporting frameworks, and audit opinions across all lecture sources.

Operating Activities

Activities that are part of the day-to-day business functioning of an entity, such as selling goods or services, paying costs of providing goods and services, and incurring income tax expense.

Investing Activities

Activities associated with the acquisition and disposal of long-term assets, such as property, plant, and equipment, or purchasing and selling debt and equity securities of other entities.

Financing Activities

Activities related to obtaining or repaying capital from owners or creditors, such as issuing or repurchasing common stock, issuing or repaying debt, and paying cash dividends.

Assets

Economic resources owned or controlled by a business entity.

Liabilities

Creditors' claims on the economic resources of a company resulting from past transactions or events.

Owners' Equity

The residual claim of owners on the resources of a company after deducting all of its liabilities.

Revenue

Inflows of economic resources to a company arising from its primary business activities.

Expenses

Outflows of economic resources or increases in liabilities arising from a company's primary business activities.

Contra Account

An account offset or deducted from another account to report a net balance, such as allowance for bad debts or accumulated depreciation.

Basic Accounting Equation

The foundational balance sheet equation expressed as $\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$.

Expanded Accounting Equation

The accounting equation that incorporates income statement components and owner distributions, expressed as $\text{Assets} = \text{Liabilities} + \text{Contributed Capital} + \text{Beginning Retained Earnings} + \text{Revenue} - \text{Expenses} - \text{Dividends}$.

Unearned Revenue

A liability account recorded when cash is received from a customer prior to providing goods or services (also termed deferred revenue).

Unbilled Revenue

An asset account recorded when revenue has been earned prior to cash receipt and before billing has occurred (also termed accrued revenue).

Prepaid Expense

An asset account created when cash is paid in advance of recognizing the associated expense in future accounting periods.

Accrued Expense

A liability account established when an expense has been incurred during the period but cash has not yet been paid by period-end.

Valuation Adjustments

Adjustments made to asset or liability carrying values so that accounting records reflect current market value rather than historical cost.

General Journal

The collection of all business transactions recorded chronologically by date in an accounting system.

General Ledger

The core accounting document or computer file containing all business transactions sorted and summarized by individual account.

Trial Balance

A document listing total ending balances of all accounts at a point in time to verify that total debits equal total credits.

Matching Principle

An accounting principle requiring that expenses incurred to generate revenues be recognized in the same accounting period as the related revenues.

First-In, First-Out (FIFO)

An inventory cost method assuming that the earliest items purchased are transferred to Cost of Goods Sold first, resulting in lower COGS and higher ending inventory under rising prices.

Last-In, First-Out (LIFO)

An inventory cost method assuming that the most recent items purchased are transferred to Cost of Goods Sold first; allowed under US GAAP but prohibited under IFRS.

Weighted Average Cost Method

An inventory valuation method that assigns costs to COGS and ending inventory based on the average cost per unit of all items available for sale during the period.

Straight-Line Depreciation Method

A depreciation method that evenly allocates cost less residual value over useful life, using the formula $\text{Depreciation Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}$.

Diminishing Balance Method

An accelerated depreciation method applying a constant rate (such as $\frac{2}{\text{Useful Life}}$) to the beginning book value each period, producing higher expense in early years.

Discontinued Operations

A component of a company that has been disposed of or is held for sale representing a major line of business or geographic region, reported after-tax on the income statement below continuing operations.

Retrospective Application

The accounting treatment for changes in accounting policy that requires revising prior financial statement periods as if the new principle had always been in use.

Prospective Application

The accounting treatment for changes in accounting estimates where adjustments are applied to current and future periods without restating prior statements.

Basic Earnings Per Share (BEPS)

The earnings per share calculated as $\text{BEPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Number of Common Shares Outstanding}}$.

Diluted Earnings Per Share (DEPS)

An EPS metric for complex capital structures that accounts for potentially dilutive securities, calculated so that DEPS is always less than or equal to BEPS.

If-Converted Method

A method to determine the dilutive effect of convertible debt or preferred stock on EPS assuming conversion occurred at the beginning of the period.

Treasury Stock Method

A method to calculate the dilutive effect of options and warrants assuming exercise proceeds are used to repurchase common stock at the average market price during the period.

Relevance

A fundamental qualitative characteristic of financial information defined by its potential to affect user decisions through predictive value, confirmatory value, or both.

Faithful Representation

A fundamental qualitative characteristic requiring financial information to be complete, neutral, and free from material error.

Going Concern

The underlying accounting assumption that a business entity will continue operating for the foreseeable future.

Management's Discussion and Analysis (MD&A)

A required SEC reporting section in which management describes trends, uncertainties, liquidity, capital resources, and operational performance.

Unqualified Audit Opinion

An independent auditor's report stating that the financial statements present fairly, in all material respects, the company's financial position and results (also called a clean opinion).

Qualified Audit Opinion

An auditor's report issued when there is a specific exception to accounting standards or scope limitation, but statements are otherwise presented fairly.

Adverse Audit Opinion

An auditor's report issued when financial statements are materially and pervasively misstated and do not fairly present the financial position of the company.

Disclaimer of Opinion

An auditor's report issued when the auditor is unable to obtain sufficient audit evidence to form an opinion on the financial statements.