ACC 300 Lecture 01 - Business Activities & Financial Statements

Vocabulary flashcards covering business activities, the four primary financial statements, basic accounting equations, classifications, and the differences between cash and accrual accounting.

Firm

A profit-seeking organization defined by an ownership structure, contracts, and a bundle of resources.

Financial Accounting

The analysis, recording, and aggregation of business transactions to produce financial statements for external users, such as investors and creditors.

Managerial Accounting (Controlling)

The provision of financial information and detailed reports prepared for internal users (managers).

Information Asymmetry

A condition where managers know more than outside investors and creditors; financial reporting helps mitigate this to support resource allocation.

Balance Sheet (Statement of Financial Position)

A financial statement prepared for a point in time that reports what the firm owns, what it owes, and the owners' residual claim.

Income Statement (P&L)

A period-based profitability report (normally covering a quarter or a year) detailing revenues and expenses to determine profit or loss.

Statement of Cash Flows (SCF)

A period financial statement that reconciles the change in cash between two balance sheet dates by categorizing operating, investing, and financing cash flows.

Statement of Shareholders' Equity

A period financial report showing changes in share capital, retained earnings, and other equity components over time.

Notes to Financial Statements

An integral component of the financial report providing accounting policies, guidance, detailed explanations, and disaggregation of statement items.

Assets

Economic resources representing expected future economic benefits, including cash, accounts receivable, inventory, buildings, and land.

Liabilities

Creditors' claims or obligations against the firm, such as accounts payable, bank loans, and debt.

Shareholders' Equity

The residual claims of the owners on the firm's resources, consisting of owner contributions (such as common stock) plus retained earnings.

Basic Accounting Equation

The core structural identity of the balance sheet: $\text{Assets} = \text{Liabilities} + \text{Shareholders' Equity}$.

Current Assets

Economic resources expected to be converted to cash, sold, or consumed within $1\,\text{year}$.

Non-Current Assets

Resources intended for use by the firm for longer than $1\,\text{year}$.

Current Liabilities

Obligations that are due to be paid or settled within $1\,\text{year}$.

Non-Current Liabilities

Obligations that become due after $1\,\text{year}$.

Revenues

Inflows of assets generated from selling goods or performing services.

Expenses

Resources consumed or outflows incurred to generate revenue, such as cost of goods sold and operating expenses.

Net Income

The bottom-line periodic profitability measure calculated as $\text{Net Income} = \text{Revenues} - \text{Expenses}$, where a value $> 0$ represents profit and a value $< 0$ represents loss.

Operating Activities

A cash flow category consisting of cash received from customers minus cash paid for day-to-day operations.

Investing Activities

A cash flow category representing cash spent on or received from the purchase and sale of non-current assets (e.g., equipment).

Financing Activities

A cash flow category involving borrowing, issuing shares, receiving equity financing, paying cash dividends, and financing repayments.

Ending Cash Formula

The calculation showing total cash at the end of a period: $\text{Ending Cash} = \text{Beginning Cash} + \text{Net Change in Cash}$.

Accrual-Basis Accounting

A GAAP-compliant accounting method where the timing of economic events drives earnings, recognizing revenues when goods are sold or services are performed, and expenses when incurred.

Cash-Basis Accounting

A non-GAAP-compliant accounting method where cash timing drives earnings, recognizing revenues only when cash is received and expenses only when cash is paid.

Accounts Receivable

An asset account representing money owed to the firm by customers from sales made on credit, rather than immediate cash.

Accounts Payable

A current liability account representing money owed by the firm to suppliers for goods or services consumed but not yet paid for.