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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.