Financial Accounting for Managers - Chapter 1 Key Terms

Vocabulary flashcards covering key terms and concepts from Chapter 1: Framework for Financial Accounting, including the functions of financial accounting, the accounting equation, and the main business activities.

Financial accounting

Accounting information provided to external users; its two functions are to measure business activities and to communicate those measurements for decision-making.

External users

Stakeholders outside the company who use financial accounting information (e.g., investors, creditors, regulators).

Financing activities

Transactions with investors and creditors that involve getting or returning money to owners or lenders.

Investing activities

Transactions involving the purchase and sale of long-term resources expected to benefit the company for several years.

Operating activities

Transactions that relate to the company’s primary operations; everyday business activities.

Assets

Resources owned by the company (cash, inventory, equipment, buildings, etc.).

Liabilities

Amounts owed to creditors (loans, accounts payable, bonds, etc.).

Stockholders’ equity

Owners’ claims to the resources of the company; includes components like common stock and retained earnings.

Revenues

Amounts recognized when the company sells products or provides services to customers.

Expenses

Costs of providing products and services and other business activities during the current period.

Net income

The difference between revenues and expenses; also called earnings or profit.

Dividends

Cash payments to stockholders; not expenses.

Common stock

A component of stockholders’ equity representing ownership shares issued to investors.

Retained earnings

Stockholders’ equity representing cumulative earnings kept in the business.

Corporation

A company legally separate from its owners; stockholders have limited liability.

Limited liability

Owners’ personal assets are protected from business debts.

Sole proprietorship

A business owned by one person.

Partnership

A business owned by two or more persons; generally lacks limited liability.

Accounting equation

Assets = Liabilities + Stockholders’ Equity; a fundamental model of business valuation.

Earnings

Synonym for net income; the profit a company earns after expenses.