Introduction to Financial Accounting

These flashcards cover key terms and concepts related to financial accounting as discussed in the lecture.

What is accounting?

It is the language of business used to record all transactions in terms of cash or goods.

Financial Accounting

The art of recording, classifying, summarising, and interpreting monetary transactions and events.

Main users of accounting information

Owners, Managers, Prospective investors, Creditors/Banks, Employees/Unions, Tax inspectors/Government, General Public.

Types of business organizations

Sole Trader, Partnership, Company.

Sole Trader

A business structure requiring no legal procedures to set up, with unlimited legal liability.

Partnership

A business structure with more than one owner, no legal procedures needed to set up, and unlimited legal liability.

Company

A legal entity managed by directors, governed by the Companies Act, must pay taxes, has limited legal liability, and must be audited.

Common Accounting Terminology: Capital

Resources supplied by the owners to the business.

Common Accounting Terminology: Assets

Resources owned by the business.

Common Accounting Terminology: Liabilities

What the business owes for the assets supplied.

Profit

When revenue is greater than expenses.

Loss

When revenue is less than expenses.

Accounting Equation

Assets = Liabilities + Equity.

Types of Financial Statements

Income Statement, Statement of Financial Position (Balance Sheet), and Cash Flows Statement.

GAAP vs IFRS

GAAP refers to Generally Accepted Accounting Principles; IFRS refers to International Financial Reporting Standards, adopted for a 'true and fair' view of financial statements.