Framework for Financial Accounting

This set of flashcards covers key concepts in financial accounting, including definitions of accounting processes, types of financial activities, and financial statements.

What is the accounting process?

The process of measuring economic activity of an entity in monetary terms and communicating the results to users.

What are the three categories of business activities?

Financing, Investing, and Operating.

What is debt financing?

Borrowing money from creditors, typically owing a principal amount and interest.

What is equity financing?

Selling stock to investors, providing them with an ownership interest in the company.

What is an asset?

Resources that the company owns that they can use for business.

What is accounts receivable?

The right to receive cash payment from customers for goods or services provided.

What is a liability?

Obligations the company needs to pay to third parties.

What is accounts payable?

Money a business owes to suppliers for goods or services already provided.

What is equity in accounting?

The book value of the company, calculated as Assets minus Liabilities.

What are retained earnings?

Income earned by the company that is reinvested and not distributed to shareholders.

What is an income statement?

Reports the results of operations for a given period, showing revenues and expenses.

What is a balance sheet?

Reports the company's financial position, showing assets, liabilities, and equity at a specific date.

What is the statement of cash flows?

Reports cash inflows and outflows during a given period, classified by operating, investing, and financing activities.

Who are external users of accounting information?

Investors, creditors, and regulators.

What is the SEC?

A federal agency that regulates the sale of stocks and bonds and where publicly traded companies file their financial statements.

What are generally accepted accounting principles (GAAP)?

The overarching rules that govern financial reporting in the US.

What roles can accountants have in private accounting?

Roles include analyst, internal audit, financial reporting, tax, budgeting, and cost accounting.

What is the primary focus of public accounting?

To provide auditing, tax, and consulting services.