FA Flashcards
Accrual Basis of Accounting
Accounting method where revenues and expenses are recorded when they are incurred, regardless of when cash is received or paid.
Deferred Revenue
A liability that represents cash received before the related revenue is earned.
Allowance for Doubtful Accounts
A contra-asset account used to estimate the portion of accounts receivable that may not be collected.
Amortization
The allocation of the cost of an intangible asset over its useful life.
Straight-Line Depreciation
A method of depreciation where an equal amount is allocated each year over the useful life of an asset.
Double-Entry Accounting
An accounting principle where every transaction affects at least two accounts, maintaining the accounting equation.
Contingent Liability
A potential liability that may occur depending on the outcome of an uncertain future event.
Impairment Loss
The reduction in the recoverable amount of a fixed or intangible asset below its carrying amount.
Prepaid Expense
An asset that represents payments made for expenses that will benefit future periods.
Accrued Expense
An expense that has been incurred but not yet paid by the end of the accounting period.
Revenue Recognition Principle
The principle that revenue is recognized when it is earned and measurable.
Matching Principle
The principle that expenses should be recognized in the same period as the revenues they help generate.
Retained Earnings
The accumulated net income of a company that is retained and not distributed as dividends.
Earnings Per Share (EPS)
A financial metric showing the portion of a company’s profit allocated to each outstanding share of common stock.
Materiality
The significance of financial information to decision-making, where omission or misstatement could influence economic decisions.
Conservatism
The accounting principle of reporting the least optimistic estimate when two estimates are equally probable.
Quick Ratio
A liquidity ratio that measures a company’s ability to meet its short-term obligations with its most liquid assets.
Current Ratio
A liquidity ratio that measures a company’s ability to cover its current liabilities with its current assets.
Debt-to-Equity Ratio
A financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets.
Working Capital
A measure of a company’s operational efficiency and short-term financial health, calculated as current assets minus current liabilities.
Accrued Revenue
Revenue that has been earned but not yet received in cash or recorded.
Operating Lease
A lease where the lessee does not assume ownership of the asset and payments are treated as operating expenses.
Capital Lease
A lease that is capitalized on the balance sheet, with the leased asset and corresponding liability recorded.
Goodwill
An intangible asset representing the value of a business’s reputation, customer base, and other non-tangible assets.
Audit Opinion
A statement by auditors regarding the accuracy and fairness of a company’s financial statements.
Qualified Opinion
An auditor’s opinion that financial statements are fairly presented except for certain issues.
Adverse Opinion
An auditor’s opinion indicating that financial statements do not fairly represent the company’s financial position.
Notes to Financial Statements
Explanatory notes that provide additional details and context for the figures in financial statements.
Sarbanes-Oxley Act (SOX)
A law enacted to improve corporate governance and financial reporting by increasing accountability.
Time Value of Money
The concept that money available today is worth more than the same amount in the future due to its earning potential.
Discount Rate
The interest rate used to calculate the present value of future cash flows.
Net Present Value (NPV)
The difference between the present value of cash inflows and outflows over a period.
Internal Rate of Return (IRR)
The discount rate that makes the net present value of a project zero.
Vertical Analysis
A financial analysis technique where each item in a financial statement is expressed as a percentage of a base amount.
Horizontal Analysis
A financial analysis technique that compares financial data over time to identify trends.
Common-Size Statement
A financial statement that presents all line items as percentages of a common base figure.
Liquidity
A measure of how quickly an asset can be converted into cash.
Solvency
A measure of a company’s ability to meet its long-term financial obligations.
Economic Entity Assumption
The accounting assumption that a business is a separate entity from its owners or other businesses.
Going Concern Assumption
The assumption that a business will continue to operate indefinitely.
Historical Cost Principle
The accounting principle of recording assets at their original purchase price.
Fair Value Accounting
An accounting approach where assets and liabilities are measured and reported at their current market value.
Segment Reporting
The reporting of financial information by different business segments of a company.
Deferred Tax Liability
A tax obligation that a company has accrued but is not due until a future period.
Deferred Tax Asset
A tax benefit expected to be realized in future periods due to deductible temporary differences.
Convertible Bonds
Bonds that can be converted into a predetermined number of shares of the issuing company.
Earnings Management
The use of accounting techniques to produce financial statements that present an overly positive view of a company’s financial position.
Hedging
A risk management strategy used to offset potential losses in one asset by taking an opposing position in a related asset.
