Accounting and Finance Terminology

Flashcards covering key terms and definitions related to accounting and finance concepts from the lecture notes.

Internal audience

Groups such as employees and management who require detailed internal financial reports for decision-making.

External audience

Groups such as investors, creditors, and regulators who need standardized, publicly available reports for transparency and accountability.

GAAP

Generally Accepted Accounting Principles; a body of rules for accounting.

Managerial accounting

Focuses on generating financial information for strategic decision-making while aiding in improving future results.

Financial accounting

Reports externally on an organization's transactions and financial health, providing retrospective information.

Wealth

Total of an individual's income plus assets.

Risk vs. Return

The principle that return is often proportional to the risk taken on an investment.

Joint stock ownership

A company structure where ownership is divided into shares that can be bought and sold.

Equity

Refers to ownership in a company, representing part of the future profits.

Debt obligation

A legally binding agreement where one party is required to repay borrowed money to another party.

Securitized debt

Debt that includes a covenant allowing the lender to reclaim assets if debts are not repaid.

Private equity

Capital investments made in privately held companies.

Initial public offering (IPO)

The process in which a company goes public and sells shares for the first time.

Primary market

The market where new securities are issued and sold for the first time.

Secondary market

The market where previously issued securities are traded among investors.

Operating costs

Ongoing expenses necessary for the day-to-day functioning of a business.

Capital costs

Expenses incurred for acquiring or upgrading physical assets.

Transparency

The practice of making information accessible to enhance understanding and evaluations.

Inclusiveness

Incorporating diverse stakeholders in decision-making processes.

Cost center

A department or function that incurs costs but does not directly generate revenue.

Financial controls

Policies and procedures designed to prevent fraud and ensure financial accountability.

Deficit spending

When an entity spends more money than it earns, borrowing or using reserves to cover the difference.

Return on equity

A measure of a company's profitability in relation to the equity held by its shareholders.

Discretionary spending

Money spent on non-essential goods and services that can be adjusted as necessary.

Opportunity cost

The value of the next best alternative forgone when a decision is made.

Budget justification

A detailed explanation of why specific budget items are necessary.

Audit

A systematic review of financial statements to ensure accuracy and compliance.

Variance analysis

A technique used to analyze the difference between planned financial outcomes and actual outcomes.