FA 1-6 Flashcards
Accounting Term
Definition
Balance Sheet
Snapshot of assets, liabilities, and equity at a given point in time.
Income Statement
Report summarizing revenues and expenses over a period, showing profit or loss.
Cash Flow Statement
Statement showing inflows and outflows of cash from operating, investing, and financing activities.
Equity
Owners’ claims on the company’s assets after liabilities are paid.
Liabilities
Obligations the company owes to outside parties.
Assets
Resources owned by a company with future economic benefits.
Revenue
Income earned from providing goods or services.
Expenses
Costs incurred in earning revenue, such as salaries or rent.
Retained Earnings
Accumulated net income retained by a company for reinvestment.
Accrued Liabilities
Liabilities for expenses incurred but not yet paid.
Notes Payable
Promissory notes signed by a borrower, promising to pay a specific amount.
Accounts Payable
Amounts the company owes to suppliers for purchases on credit.
Inventory
Goods held for sale to customers.
Prepaid Expenses
Expenses paid in advance, like insurance or rent.
Property, Plant, and Equipment (PPE)
Long-term assets used in operations, such as buildings and machinery.
Share Capital
Investment made by shareholders into the company through stock purchase.
Intangible Assets
Non-physical assets like patents or trademarks.
Auditor’s Report
Document providing opinion on the fairness of financial statements.
Going Concern
Assumption that the business will continue operating into the future.
Current Ratio
Liquidity ratio indicating ability to pay short-term obligations.
Depreciation
Allocation of asset cost over its useful life.
FIFO
First-in, first-out inventory valuation method.
LIFO
Last-in, first-out inventory valuation method.
Double-entry System
System where every transaction has a debit and credit entry.
Journal Entry
Recording of a transaction in the accounting records.
T-account
Tool used to represent and analyze individual account changes.
Cost of Goods Sold (COGS)
Direct costs of goods sold to generate revenue.
Gross Profit
Revenue minus COGS, showing gross earnings.
Net Income
Total profit after all expenses are deducted from revenue.
Trial Balance
Listing of all accounts to check for balanced debits and credits.
Working Capital
Current assets minus current liabilities; shows operational liquidity.
Deferred Revenue
Cash received in advance for goods or services not yet provided.
Deferred Expense
Expenses incurred but recognized later, such as depreciation.
Accrued Expenses
Costs incurred but not yet paid, such as accrued wages.
Current Assets
Assets expected to be converted to cash within one year.
Liquidity
The ease of converting assets to cash.
Solvency
Ability to meet long-term obligations.
Return on Assets (ROA)
Measure of profit generated per dollar of assets.
Return on Equity (ROE)
Profitability ratio showing return generated on shareholders’ equity.
Profit Margin
Net income divided by revenue; an indicator of profitability.
Amortization Schedule
Table detailing payments over time, typically for loans.
Variable Cost
Cost that varies with production volume.
Fixed Cost
Cost that remains constant regardless of production.
Break-even Point
Production level where total revenue equals total costs.
Gross Margin
Gross profit divided by revenue, indicating production efficiency.
Inventory Turnover
Ratio indicating how many times inventory is sold and replaced.
Accounts Receivable
Money owed by customers for credit sales.
Bad Debt Expense
Estimated loss from uncollectible receivables.
Allowance Method
Method for accounting bad debts using allowance for doubtful accounts.
Direct Write-Off Method
Method for writing off bad debt when it becomes uncollectible.
Sales Tax Payable
Liability for sales tax collected from customers, payable to the government.
Dividend Yield
Ratio showing dividend as a percentage of stock price.
Discount Rate
Interest rate used to determine present value.
Deferred Tax Asset
Asset recognized when taxes paid exceed tax expense.
Deferred Tax Liability
Liability recognized when tax expense exceeds taxes paid.
Shareholders’ Equity
Owners’ claims to the residual interest in the company.
Book Value
Asset’s value based on its cost less accumulated depreciation.
Market Value
Asset’s value based on market price.
Financial Ratios
Ratios used to assess various aspects of a company’s performance.
Operating Cycle
Time taken to turn inventory into cash.
Adjusted Trial Balance
Trial balance after adjusting entries, ensuring accurate reporting.
Creditworthiness
Assessment of a borrower’s likelihood to repay debts.
Asset Turnover Ratio
Ratio measuring sales per dollar of assets.
Fixed Asset Turnover
Ratio of revenue to fixed assets, showing efficiency.
Current Portion of Long-Term Debt
Current portion of long-term obligations payable within a year.
Treasury Shares
Shares reacquired by the company, reducing outstanding shares.
Callable Bonds
Bonds callable by the issuer before maturity.
Convertible Bonds
Bonds that can be converted into stock.
Debt Service Coverage Ratio
Ratio measuring a company’s ability to pay debt obligations.
Present Value
Value today of a future cash flow.
Future Value
Value in the future of a current cash flow.
Working Capital Ratio
Ratio showing working capital as a percentage of current liabilities.
Accounts Receivable Turnover
Ratio of credit sales to accounts receivable, showing efficiency.
Operating Cash Flow
Cash generated from core business activities.
Non-operating Income
Income not related to core operations, like investment income.
Payout Ratio
Percentage of earnings paid to shareholders as dividends.
Revaluation Surplus
Increase in asset values due to revaluation, not included in profit.
Capital Lease
Lease in which the lessee assumes asset ownership.
Operating Lease
Lease in which the lessee does not assume ownership.
Materiality
Concept indicating the significance of information in decision-making.
Comparability
Comparability of financial statements across periods.
Reliability
Information that is dependable and accurate.
Substance over Form
Principle that accounting should reflect reality, not just legal form.
Consistency
Using the same methods over time for consistency in reporting.
Economic Value Added (EVA)
Value created beyond required return on investment.
