Financial Accounting "Terms To Know"

Accounting
This word is defined by the “basics of business”
Accounting does this
Identify, measure, and communicate business transactions is accomplished in this field of business
Financial Accounting
This is for outside users
3 basic categories of a business plan
1. Invest 2. Finance 3. Operate these three things are what
The 2 parts to financing
Liabilities and Equity are what
Assets
things that a company owns or controls that provide future economic benefit
Liabilities
Debt/credit/loan, obligations from transactions that have taken place that result in a future economic sacrifice
Equity
Shareholder/Investor, funds generated from the sale of shares of stocks as well as income generated from the business
ASSETS = LIABILITIES + EQUITY (CONTRIBUTED CAPITAL & RETAINED EARNINGS)
Balance Sheet Equation
Balance Sheet
Assets, Liabilities, and Equities are included on what
Income Statement
Revenues and Expenses results in Net Income is on what
Statement of Stockholders Equity
The definition for what statement is “includes changes in our equity over a period of time”
Investor Equity + Income Generated Equity = Total Equity
Statement of Cash Flows
Sources of uses of cash over a period of time is projected on what statement
Cash Flow from Operations
Cash Flow from Investing
Cash Flow from Financing
Statement of Cash Flows includes what three cash flow sections
Securities and Exchange Commission (SEC)
This group oversees the stock market
Financial Accounting Standards Board (FASB)
This board controls and oversees the rules of accounting
Generally Accepted Accounting Principles (GAAP)
The accounting rules are called
Ratio Analysis
A type of financial statement analysis where it is used to put different companies on the same level for analytical purposes
Profitability Ratio
Return on Equity = Net Income / Avg. Stockholder’s Equity (is what ratio)
Credit Risk Solvency Ratio
Debt to Equity = Total Liabilities / Total Equity
Current Assets & Non Current Assets
2 types of Assets
Current Assets definition
Assets used and consumed or provide benefit within one year
Non Current Assets definition
Assets used or provide benefit for more than one year
Current Assets Listed
Cash
Accounts Receivable
Marketable Securities
Inventory
Prepaid Expenses
Non Current Assets Listed
Property, Plant, and Equipment (land, buildings, equipment utilized)
Long term investments
Intangible Assets
Accounts Receivable
This current asset is generated from sales and represents money that our costumer owe us from purchases on account
Marketable Securities
This current asset is a short term investments in stocks, bonds, that they do not plan on holding for more than a year
Inventory
This current asset is stuff the company sells
Prepaid Expenses
This current asset is expense paid for in advance ex: insurance, advertising, travel, etc.
Intangible Assets
This non current asset is a patent or a copyright
Historical Cost
What cost are assets valued at?
Historical Cost definition
basically what value the company paid for it, but its not very relevant, but it is reliable
Liquidity
Assets are listed in order of what?
Liquidity definition
How fast something can be turned into cash
Liabilities
probable future economic sacrifice resulting from an event or transaction that has taken place
Current Liabilities and Non Current Liabilities
2 types of Liabilities
Current Liabilities
LIabilities payed or satisfied within one year
Non Current Liabilities
Liabilities not payed or satisfied within one year
Current Liabilities listed
Accounts Payable
Accrued Expenses or Liabilities
Short term loans or current maturities of long term loans
Unearned Revenue
Non Current Liabilities Listed
Long term borrowings, loans, credits, debts, etc.
Accounts Payable
This current liability is money owed to venders for purchases on account or on credit
Accrued Expenses or Accrued Liabilities
This current liability is expenses or costs from past transactions place that we haven’t paid for yet ex: utility bill and you have 30 days to pay for it
Short term loans or current maturities of long term loans
This current Liability is ex: bank loan, 20-year mortgage
Unearned Revenue
This current liabilty is defined as: I have collected money from a transaction that I haven’t earned yet ex: the insurance company on Jan 1, 2016 collected a whole year’s worth of premiums for the insurance and owe the company the insurance that was paid for
Obligation
Liabilities are valued at the price of what?
Maturity
Liabilities are listed in order of what?
Contributed Capital
This type of Equity is Money received from investors from the sale of the company’s stock
Retained Earnings
This type of equity is Income Equity retained to finance the business
BEGINNING BALANCE + NET INCOME – DIVIDENDS = ENDING BALANCE
Equity Equation
Common Stock / Preferred Stock
This contributed capital is the par value of shares of stock sold
Additional Payed in Capital
This contributed capital is the value received in excess or above and beyond the par value for shares sold
Treasury Stock
This contributed capital is defined as shares of its own stock that a company has purchased from the market
Cost of Goods Sold
Operating Expenses
Non-operating Expenses
3 types of expenses
Accrual Accounting
This type of accounting is defined as Record transactions as they take place, not necessarily when cash changes hands
Analyzing Transactions
Record Transactions
Adjust Balances
Report Financial Statements
Close Temporary Accounts
Accounting Cycle Steps
Accounting Cycle
Analyzing Transactions
Record Transactions
Adjust Balances
Report Financial Statements
Close Temporary Accounts
Fiscal Year
Accounting Year, non-calendar year
Adjusting Balances
Meant to fix balances that are incorrect or to add accounts/balances that are missing (4 types of adjustments)
4 types of Adjusting Balances
Unearned Revenue
Accrued Revenues
Prepaid Expenses
Accrued Expenses
Accrued Revenues
This type of adjusting balance is defined as Recording revenue that was earned but not recorded yet for whatever reason
Accrued Expenses
This type of adjusting balance is defined as Expenses incurred during the period but not recorded or paid
Prepaid Expenses
This type of adjusting balance is defined as to expense assets that were used during the period
Current Ratio
Current Assets / Current Liabilities
Quick Ratio
Cash + Marketable Securities + Accounts Receivable / Current Liabilities
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