Accounting Flow Intuition: BASE Formula definitions Flashcards
Accounting Flow Intuition: BASE Formula definitions
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Base Formula A calculation tool in accounting: beginning balance plus additions minus subtractions equals ending balance, used to track changes in any account. Beginning Balance The amount present in an account at the start of a period, reflecting what was carried over from previous periods. Additions Increases to an account during a period, such as credit sales for receivables or net income for retained earnings. Subtractions Reductions from an account, like cash collected from receivables or dividends paid from retained earnings. Ending Balance The final amount in an account after accounting for all additions and subtractions during a period. Accounts Receivable An asset account representing amounts owed by customers for sales made on credit, awaiting cash collection. Credit Sales Sales where payment is deferred, increasing accounts receivable rather than immediately increasing cash. Cash Collected Money received from customers, especially as payment for previously recorded accounts receivable. Retained Earnings An equity account holding accumulated net income not yet distributed to shareholders as dividends. Net Income The result of revenues minus expenses for a period, which increases retained earnings. Dividends Distributions of earnings to shareholders, reducing retained earnings but not considered an expense. Equity Account A category in accounting representing ownership interest, such as retained earnings, affected by net income and dividends. Asset Account A category in accounting for resources owned by a company, like accounts receivable, increased by additions and decreased by collections. Algebra A mathematical method used to solve for unknowns in the base formula when one variable is missing. Income Statement A financial report showing revenues and expenses, with the bottom line providing net income for the period.