Financial Accounting - Measuring External Transactions

These flashcards cover the vocabulary and core concepts of measuring external transactions, the accounting equation, and the process of recording financial data as outlined in the Chapter 2 lecture notes.

Accountant (Etymology)

Derived from the Old French word “compter”.

External Transactions

Business activities that involve a separate economic entity, such as selling products to a customer or borrowing money from a bank.

Accounting Equation

$$\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$$

Net Income

The result of subtracting expenses from revenues ($\text{Revenues} - \text{Expenses} = \text{Net Income}$).

Financial Statements

Periodic reports published by a company to provide information to external users, including the Income Statement, Balance Sheet, and Statement of Cash Flows.

Income Statement

A financial statement that reports a company's revenues and expenses over an interval of time.

Statement of Stockholders' Equity

A periodic report that summarizes the changes in stockholders’ equity, including net income, dividends, and common stock issuances.

Balance Sheet

A financial statement that presents the financial position of the company on a particular date, listing assets, liabilities, and stockholders' equity.

Statement of Cash Flows

A report of the cash receipts and cash payments regarding operating, investing, and financing activities.

Expanded Accounting Equation

$$\text{Assets} = \text{Liabilities} + \text{Common Stock} + \text{Retained Earnings} + \text{Revenues} - \text{Expenses} - \text{Dividends}$$

Account

A summary of all transactions related to a particular item, such as Cash or Supplies, over a period of time.

Chart of Accounts

A comprehensive list of all account names used by a company to record business transactions.

Asset Accounts

Accounts representing resources of the company, such as Cash, Accounts Receivable, Inventory, Supplies, and Equipment.

Liability Accounts

Accounts representing amounts owed to creditors, such as Accounts Payable, Salaries Payable, and Notes Payable.

Stockholders' Equity Accounts

Accounts representing the owners' claims to resources, specifically Common Stock and Retained Earnings.

Retained Earnings Impact

A component of stockholders' equity that is increased by revenues and decreased by expenses and dividends.

Deferred Revenue

A liability account used when a company receives cash in advance for services to be provided in the future.

Contra-asset

An account that reduces the balance of an asset account, such as Accumulated Depreciation or Allowance for Doubtful Accounts.

Debit

The left side of an account; used to increase assets, expenses, and dividends.

Credit

The right side of an account; used to increase liabilities, stockholders' equity, and revenues.

DEALOR

A memory aid for debit and credit rules: Dividends, Expenses, and Assets (DEA) increase with a debit; Liabilities, Owners' equity, and Revenue (LOR) increase with a credit.

Journal

A chronological record of all transactions affecting a firm.

Journal Entry

The format used for recording a transaction in which the total debit amount must always equal the total credit amount.

Posting

The process of transferring debit and credit information from the journal to individual accounts in the general ledger.

General Ledger

A collection of all accounts for a company, providing a single location for the list of transactions affecting each account and their current balances.

T-account

A simplified version of a general ledger account with the account title at the top, debits on the left, and credits on the right.

Trial Balance

A list of all accounts and their balances at a particular date, used to ensure that total debits equal total credits.