The Nature of Accounting and Balance Sheet Fundamentals

Vocabulary practice flashcards covering fundamental accounting terms, user types, balance sheet categories, ownership structures, and transaction concepts based on the lecture notes.

Accounting

The process of identifying, recording, summarizing, and reporting a company's economic information to help decision makers make informed decisions.

Financial Accounting (F.A.)

A branch of accounting that provides information mainly for external decision makers regarding the financial health and performance of the business.

Management Accounting (M.A.)

A branch of accounting that provides information to internal decision makers (e.g., top executives, department heads) to plan and make decisions about the business.

Annual Report

A public report prepared by a company's management following national accounting rules to inform investors and others about past performance and future prospects.

Balance Sheet

A major financial statement showing the financial status, resources, and claims of a company at a particular instant in time.

Income Statement & Statement of Cash Flows

Financial statements that show financial flows over a period of time, similar to a movie.

Balance Sheet Equation

The fundamental accounting equation that must hold true at any time: $\text{Assets} = \text{Liabilities} + \text{Owners' Equity}$.

Assets

Economic resources owned and controlled by a company with probable future benefits that help generate cash inflows or reduce/prevent cash outflows.

Current Assets

Assets expected to be used, sold, or converted into cash within a short period, such as cash, accounts receivable, and inventory.

Accounts Receivable

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

Inventory

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

Long-lived (Non-current) Assets

Assets kept and used for more than one year, including tangibles, intangibles, and investments in other companies.

Liabilities

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

Current Liabilities

Obligations that are due to be paid within one year, such as accounts payable.

Accounts Payable

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

Long-term Liabilities

Economic obligations that are to be paid beyond one year, such as bank notes payable or bonds.

Owners' Equity

The owner's residual interest left after paying the company's liabilities.

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.

Sole Proprietorship

A business organization owned by a single individual, where owner's equity is recorded in a capital account.

Partnership

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

Corporation / Limited Company

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

Stockholders' Equity

The title given to owners' equity in a corporation, composed of share capital (paid-in capital) and retained earnings.

Share Capital (Paid-in Capital)

The total initial and subsequent capital contributed by owners in exchange for shares.

Retained Earnings

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

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.

Account Balance

The total of all entries to an account to date.

Double-entry System

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

Compound Entry

An accounting entry that affects more than two balance sheet accounts.