accounting_exam_1_study_guide

Financial Accounting

Accounting aimed at providing information primarily for external parties such as investors, creditors, and regulators.

Incorporation

The legal process by which a business is established as a separate legal entity from its owners, offering limited liability to its shareholders.

Dividends

Payments made to shareholders from a company's earnings, which are decided by the board of directors.

Assets

Probable future economic benefits that are owned or controlled by an organization.

Liabilities

Probable future sacrifices of economic benefits arising from present obligations of an entity.

GAAP

Generally Accepted Accounting Principles, the standards for financial accounting used in the U.S.

IFRS

International Financial Reporting Standards, the standards developed for accounting on an international level.

Materiality

The significance of an omission or misstatement that could influence the judgment of a reasonable person relying on financial statements.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated as Current Assets divided by Current Liabilities.

Accrual Accounting

An accounting method where revenue is recognized when earned and expenses are recorded when incurred, regardless of cash flow.

Temporary Accounts

Accounts that are closed at the end of an accounting period to start with zero balances in the next period, including revenues, expenses, gains, losses, and dividends.

Permanent Accounts

Accounts that carry their ending balances into the next accounting period, including assets, liabilities, capital stock, and retained earnings.

Adjusting Entries

Journal entries made at the end of an accounting period to account for accrued or deferred items.

Cash Flow Statement

A financial statement that summarizes the cash inflows and outflows from operating, investing, and financing activities.

T-Chart

A visual representation of an account that shows debits on the left side and credits on the right.

Journal

A chronological record of all financial transactions of a business.

Trial Balance

A report that lists the ending balances of all accounts in the general ledger, used to verify that total debits equal total credits.