Answer to Question #315918 in Management for Puchu

Question

You started learning the course of financial accounting and analysis in the MBA program. You learned about commonly used accounting terms. Discuss about any five terms which are commonly used by the different users of accounting information for the sake of understanding the financial statements.

Define and describe about any five terms

Answer 1

Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use. Several terms are used in accounting, below are some examples;

Accounts Payable- Accounts payable is the money a business owes to its suppliers, vendors, or creditors for goods or services bought on credit. A short-term debt that must be paid back quickly to avoid default, accounts payable shows up as a liability on an organization's balance sheet. An example of accounts payable includes when a restaurant receives a meat order on credit from an outside supplier.

Accounts Receivable- Accounts receivable is the money owed to a business, typically by its customers, for goods or services delivered. An example of accounts receivable is when a meat supplier delivers meat order on credit to a restaurant. While the restaurant records that transaction to accounts payable, the meat supplier records it to accounts receivable and a current asset in its balance sheet.

Assets- Assets are resources with economic value which companies expect to provide future benefits. These can reduce expenses, generate cash flow, or improve sales for businesses. Companies report assets on their balance sheets. Types of assets include fixed, current, liquid, and prepaid expenses. Assets may include long-term resources like buildings and equipment. Current assets include all assets a company expects to use or sell within one year. Liquid assets can easily convert to cash in a short time-frame. Prepaid expenses include advance payments for goods or services a company will use in the future.

Dividends- Dividends include company earnings, or profit, which a business pays to its shareholders as a reward for their investment in its equity. Companies may distribute dividends as cash or additional shares of stock. Shareholders may receive regularly scheduled or special one-time dividends. Exchange-traded funds and mutual funds also pay dividends.

Balance Sheet- Balance sheets are financial statements providing snapshots of organizations' liabilities, assets, and shareholders' equity at specific moments in time. Balance sheets represent one type of financial statement used to evaluate companies' financial health and worth. Accountants use the accounting equation to create balance sheets; 'Assets = Liabilities + Equity.'