Basic Accounting Principles Flashcards

Key Accounting Concepts

• Accounting involves systematic recording, reporting, and analysis of financial transactions to provide meaningful financial data.
• Generally Accepted Accounting Principles (GAAP) are the standards guiding the preparation and presentation of financial statements.

Financial Accounting Standards

• The Financial Accounting Standards Board (FASB) is responsible for establishing accounting principles.

Understanding Assets

• Assets are valuable items owned by a company, including both current and fixed assets.
• Current assets can easily be converted into cash within one calendar year, aiding in liquidity management.
• Cash is the most liquid asset, available for immediate use.
• Accounts Receivable represents money owed from customers or vendors for purchases made.
• Notes Receivable are formal agreements due within a year, representing short-term lending.

Fixed Assets and Liabilities

• Total Fixed Assets reflect the dollar value of all fixed assets, minus accumulated depreciation.
• Liabilities refer to the debts or obligations a company owes to others.
• Accounts Payable includes all short-term obligations to creditors, suppliers, and other vendors.
• Notes Payable indicates money owed on short-term obligations, typically with a clear repayment schedule.

Current Liabilities and Equity

• Total Current Liabilities is the sum of all obligations due within one year.
• Owner's Equity consists of the initial investment and retained earnings that are reinvested in the business.

Double Entry Accounting System

• Double Entry Accounting ensures that every financial transaction impacts at least two accounts, maintaining balance in financial records.

Revenue and Expenses

• Income refers to money flowing into the business, while expenses indicate money flowing out.
• Expense Accounts are categorized based on specific types of expenses incurred during operations.

Accounting Systems and Ledger

• Accounting Systems are integral for communicating detailed financial information about a company.
• The General Ledger serves as the core of the accounting system, capturing all financial transactions.
• Subledgers are subdivisions of the general ledger, categorizing accounts for detailed tracking.

Financial Statements

• The Balance Sheet displays the numerical balances derived from the chart of accounts, summarizing a company's financial position.
• The Profit and Loss Statement outlines changes in financial balances over time, highlighting income and expenses.
• Sales Figures indicate total sales adjusted for returns and discounts, reflecting actual revenue generation.
• Gross Profit is calculated by subtracting the cost of goods sold from net sales, assessing profit from core operations.

Operating Expenses and Depreciation

• Operating Expenses are daily costs associated with running the business, crucial for budgeting and financial planning.
• Depreciation accounts for the decline in value of assets over time, impacting financial statements.

Financial Performance Metrics

• Net Income is the profit remaining after all expenses and taxes have been deducted, critical for assessing financial health.
• The Business Cycle encompasses the series of transactions necessary for completing sales and collecting proceeds, fundamental to business operations.

Explore essential concepts in accounting through these flashcards. Understand key terms such as accounting, GAAP, and the role of the FASB. Perfect for students learning the fundamentals of financial reporting.