Introduction to Financial Accounting

These flashcards cover key concepts and terms related to financial accounting, including definitions and important principles.

Financial Accounting

The information system that measures business activities, processes information into reports and financial statements, and communicates results to decision-makers.

Assets

Resources the business owns that bring future economic benefits.

Liabilities

Debts or obligations the company owes to outsiders (creditors).

Owner’s Equity

What the owner actually owns in the company; includes capital and retained earnings.

Revenue

Money earned from delivering goods/services.

Expenses

Costs incurred in running the business.

Profit (Net Income)

When Revenue exceeds Expenses.

Loss

When Expenses exceed Revenue.

Accounting Equation

The formula: Assets = Liabilities + Owner’s Equity.

Monetary Principle

All business transactions must be recorded in monetary terms.

Cost Principle

Assets are recorded at their original cost including shipping and installation.

Balance Sheet

A snapshot of the business’s financial position at a specific date.

Income Statement

Shows revenues and expenses for the accounting period.

Cash Flow Statement

Shows cash inflows and outflows over the year.

Double-Entry Accounting

Every transaction causes at least two changes in accounts, ensuring the accounting equation balances.

Accrual Basis Accounting

Transactions are recorded when they happen, not when cash is received or paid.

Adjusting Entries

Entries made at the end of the accounting period to fix accounts and reflect reality.

Closing Entries

Entries that clear out revenues and expenses to start fresh in the next period.