Accounting Basics: The Accounting Equation

Vocabulary flashcards based on Chapter 1 through Chapter 4 covering fundamental concepts of the accounting equation, financial elements, and balance sheets.

Accounting Equation

States that stuff the business owns is equal to stuff the business owes ($\text{Assets} = \text{Liabilities} + \text{Equity}$ ), which always balances and forms the foundation of the double entry accounting system.

Assets

The stuff that a business owns, such as cash, accounts receivable, inventory, plant property and equipment, land and buildings, investments, and goodwill.

Liabilities

What a business owes to third parties, like accounts payable, loans payable, wages payable, and taxes payable.

Equity

what a business owes to its owner, with the most common forms being stockholders or owners equity and retained earnings.

Retained Earnings

A common form of equity that can be defined as profit held for future use.

Balance Sheet

One of the most important financial statements, formed by the expanded accounting equation, which provides a snapshot of a business's assets, liabilities, and equity at a single point in time.