Understanding Accounting and Financial Information Flashcards

Vocabulary flashcards covering accounting definitions, key financial statements, and components of the balance sheet and income statement based on Chapter 17 lecture notes.

Accounting

Recording, classifying, summarizing and interpreting of financial events and transactions in an organization to provide interested parties needed financial information.

Managerial Accounting

Provides information and analysis to managers inside the organization to assist them in decision making, including costs of production, marketing, budget preparation, and minimizing tax liabilities.

Financial Accounting

Financial information and analyses generated for people primarily outside the organization to answer questions about profitability, bill-paying ability, and debt.

Annual Report

A yearly statement of the financial condition, progress, and expectations of the firm.

Financial Statement

A summary of all the financial transactions that have occurred over a particular period.

Fundamental Accounting Equation

The basis for the balance sheet, expressed by the formula: $Assets = Liabilities + Owners Equity$

Assets

Economic resources owned by a firm, which can be tangible or intangible.

Liquidity

The ease with which assets can be converted into cash.

Current Assets

Items that can or will be converted to cash within one year.

Fixed Assets

Long-term assets that are relatively permanent such as land, buildings, or equipment.

Liabilities

What the business owes to others, specifically its debts.

Accounts Payable

Current liabilities a firm owes for merchandise or services purchased on credit.

Notes Payable

Short or long-term liabilities a business promises to pay by a certain date.

Bonds Payable

Long-term liabilities that the firm must pay back.

Owners’ Equity

The amount of the business that belongs to the owners minus any liabilities of the owners.

Income Statement

The financial statement that shows a firm’s bottom line, which is its profit after costs, expenses, and taxes.

Net Income/Net Loss

The revenue left over or depleted after all costs, expenses, and taxes have been accounted for.

Revenues

The monetary value a firm received for goods sold, services rendered or other payments.

Cost of Goods Sold (or Manufactured)

Measures the cost of merchandise the firms sells or the cost of raw materials and supplies it used in producing items for resale.

Gross Profit

How much a firm earned by buying (or making) and selling merchandise.

Operating Expenses

Expenses a firm incurs in selling goods and services such as rent, salaries and supplies.

Net Income before Taxes

The value calculated as $Gross Profit - Operating Expenses$

Retained Earnings

Accumulated earnings from the firm’s profitable operations that are reinvested in the business.

Cash Flow

The difference between cash coming in and cash going out of a business.

Statement of Cash Flows

A financial statement that reports cash receipts and cash disbursements related to the three major activities of a firm: Operations, Investments, and Financing.