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Financial accounting
Accounting Fundamentals
12 terms · by ineedtostudy · updated 4 hours ago
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Terms in this set
The accounting equation
Assets = Liabilities + Equity. It must balance after every transaction.
Asset
A resource the business controls that is expected to produce future benefit. Cash, inventory, equipment.
Liability
An obligation to transfer resources in the future. Accounts payable, loans.
Equity
The residual claim of the owners after liabilities. Also called net assets or book value.
Balance sheet
Assets, liabilities and equity at a single point in time. A snapshot.
Income statement
Revenues minus expenses over a period, ending in net income. A film, not a snapshot.
Cash flow statement
Cash movements split into operating, investing and financing activities.
Accrual accounting
Revenue is recognised when earned and expenses when incurred, regardless of when cash moves.
Depreciation
Spreading the cost of a long-lived asset across the periods that benefit from it. A non-cash expense.
Debit and credit
Left and right of an entry. Debits increase assets and expenses; credits increase liabilities, equity and revenue.
Gross vs net profit
Gross profit is revenue minus cost of goods sold. Net profit is what remains after all expenses, interest and tax.
Working capital
Current assets minus current liabilities — a rough measure of short-term liquidity.