Flashcard library · Accounting
Accounting Fundamentals
This flashcard deck provides a solid foundation in Accounting Fundamentals, perfect for students beginning their journey in business or finance. It covers essential definitions, core principles, and the main financial statements, ensuring you grasp the building blocks of how businesses track and report their financial health. Master these concepts to confidently tackle more advanced accounting topics.
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What is the basic accounting equation?
Assets = Liabilities + Equity.
What is an asset?
A resource the business controls that is expected to bring future economic benefit.
What is a liability?
A present obligation to transfer an economic benefit, such as paying cash, in the future.
What is equity?
The owners' residual claim on assets after liabilities, such as contributed capital and retained earnings.
What does the income statement report?
Revenues and expenses over a period, giving net income or loss.
What does the balance sheet report?
Assets, liabilities and equity at a single point in time.
What does the statement of cash flows report?
Cash in and out over a period, split into operating, investing and financing activities.
Which side of an account is the debit?
The left side; the right side is the credit.
Which account types increase with a debit?
Assets, expenses and dividends (or owner's drawings).
Which account types increase with a credit?
Liabilities, equity and revenue.
When is revenue recognized?
When (or as) the company satisfies its performance obligation by transferring goods or services — not necessarily when cash arrives.
What is the matching (expense recognition) principle?
Expenses are recorded in the same period as the revenues they help generate.
What is the historical cost principle?
Assets are recorded at their original purchase cost.
What is the going concern assumption?
The business is expected to keep operating for the foreseeable future.
How does financial accounting differ from managerial accounting?
Financial accounting reports to outside users such as investors; managerial accounting serves internal decision-makers.