The Nature of Accounting and Balance Sheet Fundamentals

Vocabulary practice flashcards covering basic accounting definitions, user types, balance sheet components, forms of ownership, and transaction analysis.

Accounting

The process of identifying, recording, summarizing, and reporting economic information for decision makers.

Financial Accounting

The branch of accounting that provides information mainly for external decision makers, such as shareholders, trade contacts, banks, tax authorities, and employees.

Management Accounting

The branch of accounting that provides information to internal decision makers, such as top executives, department heads, college deans, and hospital administrators.

Annual Report

A report prepared by management that informs investors about the company's past performance and future prospects, including financial statements, a management discussion and analysis, footnotes, and an auditor's report.

Balance Sheet

A financial statement (also called the statement of financial position) that shows the financial status of a company at a particular instant in time based on the equation $\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$.

Income Statement

A major financial statement that reports how well an organization did during a given period by displaying financial flows.

Assets

Economic resources owned and controlled by a firm with probable future benefits, expected to help generate future cash inflows or reduce future cash outflows.

Liabilities

Economic obligations of the organization to outsiders (creditors) that will have to be repaid or settled in the future.

Owners' Equity

The owners' residual interest or claim on the organization's net assets.

Accounts Receivable

Assets resulting from the sale of goods or services on credit (on open account), representing the amount customers owe to the company.

Inventories

Stocks held by a company for the purpose of sale to customers.

Accounts Payable

Liabilities resulting from a purchase of goods or services on credit, representing the amount the company owes to suppliers.

Sole Proprietorship

A business with a single owner.

Partnership

An organization that joins two or more individuals who act as co-owners.

Corporation

A business organization that is constituted as a separate legal entity from its owners, who have only limited liability.

Publicly Owned Corporation

A corporation owned by the public through the sale of shares, which may have thousands of owners.

Privately Owned Corporation

A corporation owned by families or a small group of shareholders, whose shares are not publicly sold.

Share Capital

The total initial and subsequent capital contributed by owners to a corporation (also called paid-in capital).

Retained Earnings

The accumulated, non-distributed income or profit resulting from ongoing business operations.

Board of Directors

A body elected by stockholders to oversee management and ensure managers act in the interest of shareholders.

Auditor

An independent professional who examines the information used by managers to prepare financial statements and provides assurances about their credibility.

Entity

An organization that stands apart from other organizations and individuals as a separate economic unit.

Transaction

Any event that affects the financial position of an entity and that can be reliably recorded in monetary terms.

Account

A summary record of the changes in a particular asset, liability, or owners' equity item.

Double-Entry Accounting System

An accounting system that records each transaction in at least two accounts.

Compound Entry

A transaction entry that affects more than two balance sheet accounts.