ACC 300 Lecture 01 - Business Activities & Overview of Financial Statements

Vocabulary practice flashcards covering core accounting terms, financial statements, classification rules, and reporting principles from ACC 300 Lecture 01.

Firm

A profit-seeking organization defined by its ownership structure, contracts, and bundle of resources.

Financial Accounting

The analysis, recording, and aggregation of business transactions into financial statements intended for external users such as investors and creditors.

Managerial Accounting / Controlling

The provision of financial information and detailed reports intended for internal users, specifically managers.

Information Asymmetry

A condition in which managers have access to more operational information than outside investors and creditors, which financial reporting aims to reduce to support efficient resource allocation.

Annual Report

A comprehensive document used to communicate a firm's business activity, financial condition, and operating results to stakeholders.

Notes to Financial Statements

A required financial statement component that provides accounting policies, detailed explanations, and disaggregation of statement line items.

Balance Sheet (Statement of Financial Position)

A point-in-time financial statement reporting what a firm owns (assets), owes (liabilities), and the owners' residual claim (equity).

Assets

Economic resources with expected future economic benefits controlled by the firm, including cash, accounts receivable, inventory, buildings, and land.

Liabilities

Creditors' claims or obligations against the firm's resources, such as accounts payable, bank loans, and debt.

Shareholders' Equity

The residual claims of owners on the firm's assets, consisting of owner contributions (such as common stock) plus retained earnings.

Basic Accounting Equation

The fundamental balance sheet relationship defined as $\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$, demonstrating that total resources equal total claims on resources.

Current Assets

Assets expected to be converted into cash, sold, or consumed within $1\,\text{year}$.

Non-Current Assets

Economic resources intended for productive use by the business for a duration longer than $1\,\text{year}$.

Current Liabilities

Obligations that are due to be settled or paid within $1\,\text{year}$.

Non-Current Liabilities

Financial obligations and debts that are due after $1\,\text{year}$.

Income Statement (P&L)

A period-based financial statement reporting a firm's profitability from revenues and expenses, typically covering a quarter or a year.

Revenues

Inflows of assets resulting from the delivery of goods or the performance of services to customers.

Expenses

Resources consumed or asset outflows incurred to generate revenue, such as cost of goods sold and operating expenses.

Net Income Formula

The calculation of bottom-line profit or loss expressed as $\text{Net Income} = \text{Revenues} - \text{Expenses}$, where a positive value indicates profit and a negative value indicates a loss.

Statement of Cash Flows (SCF)

A period financial statement that reconciles the change in cash between two balance sheet dates by identifying where cash came from and where it went.

Operating Activities

A cash flow category consisting of cash received from customers minus cash paid for day-to-day business operations.

Investing Activities

A cash flow category encompassing cash outflows and inflows from the purchase and sale of non-current assets, such as equipment.

Financing Activities

A cash flow category involving transactions with capital providers, including borrowing, issuing shares, paying cash dividends, and repaying debt principal.

Net Change in Cash Formula

The cash reconciliation formula defined as $\text{Change in Cash} = \text{Operating CF} + \text{Investing CF} + \text{Financing CF}$.

Ending Cash Formula

The balance sheet cash link defined as $\text{Ending Cash} = \text{Beginning Cash} + \text{Net Change in Cash}$.

Statement of Shareholders' Equity

A period financial statement detailing how equity accounts—including share capital and retained earnings—changed over time.

Accrual-Basis Accounting

A GAAP-compliant accounting framework where revenues are recognized when goods are sold or services are performed and expenses are recognized when incurred, driven by the timing of economic events.

Cash-Basis Accounting

A non-GAAP compliant accounting framework where revenues are recognized only when cash is received and expenses when cash is paid, driven strictly by cash timing.

Accounts Receivable

An asset account representing money owed to the firm by customers for goods delivered or services provided on credit, which does not constitute immediate cash.

Accounts Payable

A liability account representing short-term obligations owed to suppliers for goods or services received on credit.