Accounting flashcards, generated for you.

Assets = Liabilities + Equity. Example: A company with $100K in assets, $30K in liabilities, has $70K in equity.

Debit: entry on left side of account. Credit: entry on right side. Each transaction has equal debits and credits. Example: Debit Cash $5K, Credit Revenue $5K when selling services.

Income Statement (profit/loss), Balance Sheet (assets/liabilities/equity), Cash Flow Statement (cash movements), Statement of Changes in Equity (ownership changes).

Accrual: revenue/expenses recorded when earned/incurred, not when cash moves. Cash: recorded only when money changes hands. Example: Invoice a client $10K in December, receive payment in January—accrual records revenue in December.

Systematic allocation of an asset's cost over its useful life. Reduces asset value and creates an expense. Example: $50K machine with 5-year life = $10K annual depreciation expense, matching cost to periods benefited.

Gross Profit = Revenue − Cost of Goods Sold. Net Income = Revenue − All Expenses (COGS, operating, interest, taxes). Example: $100K revenue, $40K COGS = $60K gross profit; minus $35K operating expenses = $25K net income.

Money owed to a company by customers for sold goods/services on credit. Asset on Balance Sheet. Example: Sell $20K on credit in Month 1, customer pays in Month 2—receivable recorded Month 1, cash received Month 2 (accrual vs. cash timing).

Expenses should be recorded in the same period as the revenue they help generate. Example: Sales commission earned in Q3 for Q3 sales is expensed in Q3, not when paid in Q4.

Working Capital = Current Assets − Current Liabilities. Measures liquidity and operational efficiency. Example: Current assets $80K, current liabilities $50K = $30K working capital (healthy cushion for short-term obligations).

Lists all ledger account balances to verify total debits equal credits (catching errors). Prepared before adjusting entries at period-end. Example: If debits = $500K and credits = $495K, a $5K error exists and must be found before finalizing statements.