Fundamental Accounting Equation definitions Flashcards
Fundamental Accounting Equation definitions
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Fundamental Accounting Equation Core formula stating that resources owned by a company are always balanced by claims from creditors and owners. Assets Resources, tangible or intangible, owned by a business, providing future economic benefits. Current Assets Resources expected to be converted into cash or used up within one year, such as cash, inventory, or accounts receivable. Long-term Assets Resources intended for use over periods longer than one year, including land, buildings, and machinery. Liabilities Obligations representing amounts owed to outsiders, requiring future sacrifices of resources. Current Liabilities Obligations due within one year, such as accounts payable or short-term loans. Long-term Liabilities Obligations not due within the next year, including long-term loans and bonds. Equity Residual interest in company assets after deducting liabilities, representing ownership claims. Paid-in Capital Funds invested in a company by its owners at inception or through additional contributions. Retained Earnings Accumulated profits from previous years not distributed as dividends but reinvested in the business. Revenue Total inflows of resources from business operations, such as sales, before deducting expenses. Expenses Outflows or consumption of resources incurred to generate revenue during a specific period. Dividends Payments made to shareholders from retained earnings, not classified as an expense. Income Net result after subtracting expenses from revenue, also referred to as profit or net earnings. Accounts Payable Amounts owed to suppliers or creditors for goods and services received but not yet paid for.
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