Basic Financial Accounting & Reporting - Vocabulary Flashcards

Accounting Information System (AIS)

A system that combines people, records, procedures with software, hardware, and data to provide financial information for decision-makers.

Parts of an information system

The five components: People, Procedures, Software, Hardware, and Data.

People (in AIS)

Competent end users who use hardware and software to solve information-related or decision-making problems.

Procedures (in AIS)

Manuals and guidelines that instruct end users on how to use software and hardware.

Software (in AIS)

Programs that tell the computer how to process data; includes system software and application software.

Hardware (in AIS)

Physical devices of a computer system: input devices, system unit, storage, output devices, and communications devices.

Data (in AIS)

Raw material for processing; numbers, letters, symbols stored electronically in files.

System Software

Background software that manages the computer’s resources (e.g., operating system).

Application Software

Software that performs useful work on general-purpose problems; basic vs advanced applications.

Manual systems

Paper-based journals and ledgers used to record transactions.

Computer-Based Transaction Systems

Electronic recording systems that replace paper records and keep accounting data separate from operating data.

Database Systems

Relational databases embedding accounting data within business event data and reducing redundancies.

Module

A program that handles one part of the accounting system; can be stand-alone or part of a suite.

ERP (Enterprise Resource Planning)

An integrated relational database system that captures financial and non-financial data across the organization.

Data warehouse

A central repository for data used for reporting and analysis.

Relational database

A database structure storing data in related tables to minimize redundancy.

Stages of data processing

Input → Processing → Output.

Source documents

Documents evidencing a transaction (invoices, receipts, timecards).

Elements of financial statements

Assets, Liabilities, Equity, Income, and Expenses.

Asset

A present economic resource controlled by the entity as a result of past events that can provide future benefits.

Right (in asset definition)

A claim to receive cash, goods, or services; a right to benefit from an asset.

Control

Present ability to direct the use of the resource and obtain its benefits.

Liability

A present obligation of the entity to transfer an economic resource as a result of past events.

Equity

Residual interest in the assets after deducting liabilities; owners’ claims.

Income

Increases in assets or decreases in liabilities that increase equity, excluding owner contributions.

Expenses

Decreases in assets or increases in liabilities that decrease equity, excluding owner withdrawals.

Account

A detailed record of increases, decreases, and the balance for a component of financial statements.

T-account

A simple 'T' shaped account with a left Debit side and a right Credit side.

Debit

Left-side entry; increases assets and expenses, decreases liabilities, equity, and revenue.

Credit

Right-side entry; increases liabilities, equity, and revenues; decreases assets and expenses.

Normal balance

The side of an account that normally shows increases.

Normal balance – Asset accounts

Debit.

Normal balance – Liability accounts

Credit.

Normal balance – Owner’s Equity accounts

Credit.

Normal balance – Income accounts

Credit.

Normal balance – Expense accounts

Debit.

Normal balance – Withdrawals

Debit.

Source of Assets (SA)

A type of transaction that increases assets and increases a liability or equity account.

Exchange of Assets (EA)

One asset increases and another asset decreases.

Use of Assets (UA)

An asset decreases and corresponding liabilities or equity decrease.

Exchange of Claims (EC)

One liability/equity increases and another liability/equity decreases.

Current asset

An asset expected to be realized or consumed in the normal operating cycle, within 12 months, or cash/cash equivalents.

Current assets examples

Cash, Cash Equivalents, Notes Receivable, Accounts Receivable, Inventories, Prepaid Expenses.

Non-current asset

Assets not expected to be realized or consumed within 12 months or the operating cycle.

Property, Plant and Equipment

Tangible assets held for use in production or services, with long-term use.

Accumulated Depreciation

Contra-asset account that sums depreciation of related tangible assets.

Intangible assets

Identifiable, non-monetary assets without physical substance (goodwill, patents, copyrights, licenses, trademarks).

Current liabilities

Liabilities due to be settled within 12 months or the operating cycle; includes accounts payable, notes payable, accrued liabilities, unearned revenues.

Notes Payable

Written promissory note to repay a debt on a future date.

Unearned Revenues

Liability representing cash received before services are performed.

Mortgage Payable

Long-term debt secured by property.

Bonds Payable

Long-term debt issued in the form of bonds.

Owner’s equity components

Capital, Withdrawals, Retained Earnings (in corporations: share capital, retained earnings, reserves).

Income Statement

Financial statement reporting Revenues and Expenses to show net income or loss.

Revenue vs Receipts

Revenue is earned income; receipts are cash collected; revenue