FA-H1

Here is a glossary of terms and definitions related to Chapter 1: Financial Statements and Business Decisions, based on the provided sources:

  • Accounting A system that collects and processes financial information about an organisation and reports that information to decision-makers.

  • Accounting Entity The organisation for which financial data is to be collected. A business is treated as a separate entity for accounting purposes. The separate entity assumption states that each business's activities must be accounted for separately from the personal activities of its owners.

  • Accounting Period The time period covered by the financial statements.

  • Assets Economic resources of a company. Assets are financed from debt or equity. Assets can be current (used or turned into cash within one year) or noncurrent (lasting longer than one year). Examples of assets include cash, accounts receivable, and property, plant and equipment.

  • Balance Sheet (also known as the statement of financial position) A financial statement that reports the financial position (assets, liabilities, and stockholders' equity) of an accounting entity at a specific point in time. The basic accounting equation is Assets = Liabilities + Stockholders' Equity.

  • Cash Flow Statement A financial statement that reports the inflows and outflows of cash for a specific period, categorised into operating, investing, and financing activities. It shows how much cash a company generated and spent during the year.

  • Creditors Lenders who provide funds to a company and make money on loans by charging interest. They use financial statements to assess a company's ability to repay debts.

  • Current Assets Assets that will be used or turned into cash within the upcoming year.

  • Current Liabilities Obligations that will be paid or settled within the next 12 months with current assets.

  • Dividends Cash payments made to stockholders from a company’s earnings.

  • Expenses The costs of operating a business incurred to generate revenue.

  • Financial Accounting Accounting focused on providing information for external decision-makers, such as investors and creditors. The information provided must be relevant, reliable, comparable, and consistent.

  • Financial Statements Summarise the financial activities of a business. The four basic financial statements are the income statement, balance sheet, statement of stockholders' equity and statement of cash flows. The purpose of financial statements is to provide information about the financial position, financial performance and cash flow of an entity.

  • Generally Accepted Accounting Principles (GAAP) The rules and guidelines for preparing financial statements. They determine the content and measurement rules of financial statements. The Financial Accounting Standards Board (FASB) has the primary responsibility for setting GAAP in the United States.

  • Going Concern Assumption (also called continuity assumption) The assumption that a business will continue operating into the foreseeable future.

  • Income Statement (also known as the statement of operations, statement of earnings, statement of comprehensive income) A financial statement that reports a company's financial performance over a period of time, including revenues, expenses, and net income. The basic equation of the income statement is Revenues - Expenses = Net Income.

  • Investors Individuals or entities that purchase stock in a company hoping to receive dividends and sell their shares at a higher price. They use financial statements to estimate future performance.

  • Liabilities Obligations of a company to creditors. Liabilities can be current (due within a year) or long-term.

  • Management accounting system Generates information for internal decision makers, such as managers throughout the organisation.

  • Monetary Unit Assumption The assumption that each business entity accounts for and reports its financial results primarily in terms of the national monetary unit.

  • Net Income The profit of a company after deducting all expenses from revenues.

  • Noncurrent Assets Assets that will last longer than one year.

  • Noncurrent Liabilities Obligations not classified as current liabilities.

  • Retained Earnings The accumulated profits of a company that have not been distributed to stockholders as dividends. Retained earnings is part of stockholders’ equity.

  • Revenues The income generated by a company from its business activities.

  • Separate Entity Assumption The principle that a business's financial activities must be kept distinct from those of its owners and other entities.

  • Statement of Stockholders' Equity A financial statement that reports the changes in a company's equity accounts (common stock and retained earnings) over a period of time. It shows how net income and dividends affect the company’s financial position.

  • Stockholders' Equity The owners’ stake in a company. It represents the residual interest in the assets of the entity after deducting liabilities. It includes common stock, retained earnings, and additional paid-in capital.

  • Stockholders (Shareholders) Owners of a corporation who receive shares of stock and have a voice in management.

  • Transaction An event that has an economic impact on an entity and is recorded as part of the accounting process.

  • Retained Earnings: The cumulative amount of net income that has been retained in the company rather than distributed to shareholders as dividends.