Accounting Chapter 1 Vocab

Balance Sheet

$Assets = $Liabilities + $Stockholders' Equity at a point in time

Assets

Economic resources that a company owns and can sell for money or has the right to collect

• cash

• inventory

• buildings/land

• investments

• accounts receivable

• notes receivable

• supplies

Current Assets

Assets that are going to used in less than a year

• cash

• accounts receivable

• prepaid expenses

• notes receivable

• inventory

Cash

Asset - Money that is on hand or in the bank.

Accounts Receivable (A/R)

Asset - the money that customers owe a business for goods or services that have been delivered or provided on credit

Prepaid Expenses

Asset - Expenses that a company has paid for in advance. E.g. An annual insurance policy paid for in advance.

Notes Receivable

Asset - written, leagally binding loan that a company has issued and has the right to collect - short/long term - have interest associated

Inventory

Asset - Goods that a company will sell. Please note that a service company does not have inventory. E.g., The cost that Foot Locker incurred to stock its stores with shoes.

Non Current Assets

Assets that are going to be used in more than a year

• Property, Plant & Equipment

• Land

• Intangible assets

Property, Plant, & Equipment (PP&E)

Asset - Any type of property that is owned and will be depreciated over the course of its useful life. E.g., computers, cars, buildings.

Land

Asset - Real Estate. This is not depreciated; however, the building on the land would be depreciated

Intangible Assets

Asset that have economic value that cannot be touched. E.g. Patent, Trademark, or Copyright.

Liability

An economic resource that is owed.

• Accounts Payable

• Accrued Expenses

• Notes Payable/ bank loans

• Taxes Payable

• Wages payable

• Bonds payable

Current Liabilities

Liabilities that are due within a year.

Accounts Payable (A/P)

Liability - Amount that must be paid because a good or service has been previously delivered or performed.

Accrued Expenses

Liability - Unrecorded expenses that have been incurred. These are adjusted for at the end of a period. E.g., A company that has used electricity but has not received its electric bill yet.

Note Payable

Liability - Loan that must be paid back. Please note that the difference between a note payable and an account payable is that a note has interest associated with it. Notes payable could be short/long term

Unearned Revenue

Liability - An obligation that must be completed before revenue is recorded. In this case, cash is typically received in advance, and a company has an obligation to provide a service. E.g., An insurance company that receives a prepayment from a customer must provide insurance to the customer in the future.

Long Term Liabilities

Liabilities that are due in more than a year

Stockholders' Equity

The financing provided by the owners and operations of a company. Sometimes called Owners' Equity

• common stock

• retained earnings

• additional paid in capital

Contributed Capital

Stockholders' Equity - General term to indicate cash or other assets provided by the owners to the business

Common Stock

Stockholders' Equity - Shares of a corporation are issued, typically in exchange for cash. Please be aware: the value of the common stock account is equal to the number of shares issued multiplied by the par value of the stock.

Paid In Capital Excess of Par

Stockholders' Equity - the difference between the cash raised at the issuance of stock and the par value of the common stock - also called Additional Paid in Capital

Retained Earnings

Stockholders' Equity - Cumulative earnings of a company that are not distributed to the owners of the business and are reinvested. Please note that this is not cash. It is calculated by taking the sum of historical net income minus the sum of historical dividends.

Net Income

on an income statement - over a period of time

Total Revenue - Total Expenses + Total Gains - Total Losses =

Revenue

Sales earned through the course of operations.

Expenses

General term to indicate decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period. NOTE: An expense may be recognized before, when, or after the cash is paid (big difference between accrual accounting and cash accounting)..

Cost of Goods Sold (COGS)

A specific expense that represents the Cost of the inventory sold to earn revenue. Please note that only merchandising or manufacturing companies have COGS.

Gains

The amount by which the sales price of an investment or property is greater than the book value of an investment or property. Note: This is not revenue as gains occur on items that are not normally sold through the daily operations. E.g., Verizon sells a company truck for more than the listed book value.

Losses

The amount by which the sales price of an investment or property is less than the book value of an investment or property. Note: This is not an expense, as losses occur on items that are not normally sold through the daily operations. E.g., Verizon sells a company truck for less than the listed book value.

Financial Statement Order

Income Statement→ Statement of Stockholders Equity→ Balance Sheet→ Statement of Cash Flows

ALOE

Assets = Liability + Stockholders Equity