Introducing Financial Statements and Accounting Methodology

A set of vocabulary flashcards covering the key terms, equations, normal balances, and basic financial statements from the Chapter 1 accounting lecture.

Accounting

The language of business, where financial accounting specifically refers to financial reporting.

Basic Accounting Equation

The foundational accounting equation defined as $\text{Assets} = \text{Liabilities} + \text{Equity}$.

Assets

Resources owned or controlled by an entity that are expected to yield future benefits, such as buildings and lands.

Liabilities

Claims against an entity's resources by creditors representing future sacrifices, such as accounts payable and salaries payable.

Equity

Claims against an entity's resources by owners or investors.

Expanded Accounting Equation

The detailed accounting equation written as $\text{Assets} = \text{Liabilities} + \text{Common Stock} - \text{Dividends} + \text{Revenues} - \text{Expenses}$.

Net Income

The positive difference calculated when revenues exceed expenses, expressed as $\text{Revenues} - \text{Expenses}$.

Retained Earnings

The cumulative balance made up of revenues minus expenses minus dividends ($\text{Revenues} - \text{Expenses} - \text{Dividends}$).

Dividends

Distributions of assets or earnings made by a company to its owners.

Assets Normal Balance

Increased by a Debit (Dr.) and decreased by a Credit (Cr.), resulting in a normal debit balance.

Liabilities Normal Balance

Decreased by a Debit (Dr.) and increased by a Credit (Cr.), resulting in a normal credit balance.

Equity Normal Balance

Decreased by a Debit (Dr.) and increased by a Credit (Cr.), resulting in a normal credit balance.

Revenues Normal Balance

Decreased by a Debit (Dr.) and increased by a Credit (Cr.), resulting in a normal credit balance.

Expenses Normal Balance

Increased by a Debit (Dr.) and decreased by a Credit (Cr.), resulting in a normal debit balance.

Dividends Normal Balance

Increased by a Debit (Dr.) and decreased by a Credit (Cr.), resulting in a normal debit balance.

Four Basic Financial Statements

The primary financial reports prepared in sequential order: Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows.

Income Statement

A financial statement covering revenues and expenses that communicates financial performance during an accounting period.

Statement of Retained Earnings

A financial statement showing changes in retained earnings during an accounting period, increased by revenues and decreased by expenses and dividends.

Balance Sheet

A financial statement summarizing assets, liabilities, and stockholders' equity to communicate financial position at a specific point in time.

Statement of Cash Flows

A financial statement summarizing changes in a company's cash balance during an accounting period, divided into operating, investing, and financing activities.