ACCT 1001 – Fundamental Business Model & Accounting Cycle Vocabulary

Vocabulary flashcards summarizing key accounting terms and concepts from ACCT 1001 lectures on the Fundamental Business Model and the Accounting Cycle.

Cash on Hand

Cash currently held by the owner or investors in physical form.

Cash in Bank

Cash kept in a bank account owned by the investor, owner, or the business.

Petty Cash Fund

A small amount of cash set aside for minor or incidental expenses.

Products

Tangible objects a business sells to generate cash.

Services

Skill, knowledge, or expertise offered for a price.

Property, Plant, & Equipment (PPE)

Assets a business uses for more than one year, such as delivery trucks or office buildings.

Operating Expenses

Cash spent to perform the daily operations necessary to run the business.

Rent Expense

Cash paid for the rental of land or property.

Utilities Expense

Cash spent on water, electricity, and other basic facility utilities.

Sales

Cash generated from selling products.

Revenue

Cash earned from providing services.

Assets

Items owned by a business that have economic value.

Liabilities

Debts or obligations the business owes to others.

Equity

The current amount invested by owners or investors in the business.

Profit

Occurs when income exceeds expenses.

Loss

Occurs when expenses exceed income.

Current Assets

Assets expected to be used or converted to cash within one year.

Non-current Assets

Assets usable for more than one year.

Accounts Receivable

Amounts owed to the business by customers who have not yet paid.

Inventories

The current stock of products owned by a business for sale.

Trust Fund Doctrine

Rule that liabilities must be paid before returning cash to investors during liquidation.

Liquidation

Selling assets to raise cash for paying liabilities.

Liquidity

Ability to meet short-term obligations or debts.

Solvency

Ability to meet long-term obligations or debts.

Lenders

Banks, persons, or institutions that provide loans.

Creditors

Parties to whom the business owes money.

Going Concern Assumption

Assumption that a business will continue operating indefinitely.

Sole Proprietorship

Business owned by one individual and registered with the DTI.

Partnership

Business owned by two or more individuals under a contract, registered with the SEC.

Managing Partners

Partners designated to represent and manage the partnership.

Corporation

Business created by law, owned by shareholders, and registered with the SEC.

Incorporators

Individuals who form a corporation.

Shareholders

Individuals who buy shares of stock in a corporation.

Authorized Shares

Maximum number of shares a corporation is allowed to sell.

Return of Capital

Process of returning the original equity to investors.

Return on Capital

Money earned beyond the original capital returned.

Financial Statements

Business “report cards” used to assess financial status.

Statement of Financial Position

Financial statement that includes the Assets = Liabilities + Equity equation.

Statement of Comprehensive Income

Report showing income, expenses, and losses.

Statement of Cash Flows

Report detailing cash inflows and outflows.

Statement of Changes in Equity

Shows initial investment, changes in investment, withdrawals, and drawings.

Notes to Financial Statement

Supporting information such as computations or relevant non-accountable events.

Additional Investment

Extra funds contributed by an investor after the initial investment.

Withdrawal (Drawings)

Pre-emptive removal of money by an investor from the business.

Merchandising / Trading Business

Business that buys and sells products without modification.

Manufacturing (Conversion) Business

Business that processes raw materials into finished products.

Service Business

Business that earns profit by providing services based on skills or expertise.

Economic Activities

Transactions and events occurring in the normal operation of a business.

Accounting Cycle

Step-by-step process of recording and reporting financial transactions.

Accountable Events

Events that affect the elements of financial statements and must be recorded.

Non-Accountable Events

Events with no impact on financial statement elements; relevant ones are disclosed in notes.

Journalizing

Recording accountable business transactions in the journal.

Posting to the Ledger

Transferring journal entries to T-accounts in the ledger.

T-Account

Visual representation in the ledger showing debits on the left and credits on the right.

Normal Side (Accounting)

The side—debit or credit—on which an account increases.

Unadjusted Trial Balance

List of ledger balances before adjustments are made.

Adjusted Trial Balance

List of ledger balances after incorporating necessary adjustments.