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4E6 - Accounting & Finance > 1. Introduction > Flashcards

1. Introduction Flashcards

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1
Q

what is accounting (there are 4 key roles)

A
  • accounting is the process of identifying, measuring, recording and communicating an organizations economic activities to users
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2
Q

what is the difference between internal and external users of accounting information

A
  • internal users work for the organization and are responsible for operations
  • external users dont work for the organization, like investors, creditors and customers
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3
Q

what is financial accounting

A
  • the area of accounting that presents financial information of interest to external users
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4
Q

what is an organization

A
  • a group of individuals who come together to pursue a common set of goals and objectives
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5
Q

what are the two types of orgs and what do they do

A
  • business orgs: they sell products or services for profit
  • non-business orgs: they exist to meet social needs and dont have profit as a goal, eg charities
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6
Q

what are the three most common forms of business orgs

A
  • proprietorship
  • partnership
  • corporation
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7
Q

what is a proprietorship

A
  • a business owned by one person
  • it is not a separate legal entity, meaning the business and owner are considered the same
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8
Q

what is a partnership

A
  • a business owned by two or more people
  • it is not a separate legal entity
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9
Q

what is a corporation

A
  • a business owned by one or more owners
  • the owners are known as shareholders
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10
Q

what are shareholders and shares

A
  • shareholders are entities who own shares of a corporation
  • shares are units of ownership in a corporation
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11
Q

what is the difference between a publicly accountable enterprise and a private enterprise

A
  • a publicly accountable enterprise is a corp whose shares can be publicly bought or sold on a stock exchange by any number of people
  • a private enterprise is a crop whose shares are held privately by one or a few shareholders
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12
Q

what is the relationship between shareholders, the board of directors and the president of a corp

A
  • shareholders elect the board of directors, usually annually
  • the board of directors then appoint the president and other high ranking officials
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13
Q

what are the 6 qualities that financial information should posses, according to generally accepted accounting principles (GAAP)

A
  • relevance
  • faithful representation
  • comparability
  • verifiability
  • timeliness
  • understandability
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14
Q

what are the 4 types of financial statements

A
  • income statement
  • statement of changes in equity
  • balance sheet
  • statement of cash flows
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15
Q

what is the purpose of an income statement

A
  • to communicate information about a business’s financial performance
  • by summarizing revenues minus expenses over a period of time
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16
Q

what is the difference between revenue and assets

A
  • revenue is created when a business provides products or services to a customer in exchange for assets
  • assets are economic resources that provide future benefits to the business
17
Q

what are expenses

A
  • assets that have been used up
  • or the obligations incurred in the course of earning revenues
18
Q

what is net income and what information does it convey

A
  • net income = revenue - expenses
  • it communicates whether the activities of an entity are being conducted profitably
  • so its one measure of the success of an entity
19
Q

what is the purpose of a statement of changes in equity

A
  • to provide information about how the balances in share capital and retained earnings changed during the period
20
Q

what is share capital

A
  • how much money shareholders have invested
21
Q

what is the formula for retained earnings

A
  • retained earnings = net income - dividends
22
Q

in a statement of changes in equity report, what is the formula for total equity

A
  • total equity = share capital + retained earnings
23
Q

what is the purpose of a balance sheet

A
  • to communicate what a business owns (assets)
  • what the business owes (liatbilities)
  • and the difference between assets and liabities at a point in time (shareholer equity)
24
Q

what is the formula for total assets on a balance sheet

A
  • total assets = total liabilities + shareholders equity
25
Q

what is a liability

A
  • an obligation to pay an asset in the future
  • this is also called debt
26
Q

what is the difference between accounts receivable and accounts payable

A
  • accounts receivable represent amounts to be collected in cash in the future for goods sold or services provided (asset)
  • accounts payable are obligations to pay a creditor for goods bought or services rendered (liability)
27
Q

what is shareholders equity

A
  • the net assets owned by the shareholders
  • net assets are assets - liabilities
28
Q

what is the purpose of the statement of cash flows

A
  • to explain the inflows and outflows of cash over a period of time
29
Q

what is the accounting equation

A
  • assets = liabilities + shareholders equity
  • aka: economic resources owned by an entity = creditors claims on assets + owners claims on assets
30
Q

what are 4 common examples of assets

A
  • cash
  • accounts receivable
  • prepaid insurance
  • equipment
31
Q

what are 3 common examples of liabilities

A
  • bank loans
  • accounts payable
  • unearned revenue
32
Q

what are 2 common examples of shareholder equity

A
  • share capital
  • retained earnings
33
Q

why are financial statements prepared at regular intervals

A
  • to keep a number of interested groups informed about the financial performance of an entity
  • the timing is determined by the needs of management in running the entity
  • or by outside parties like bankers to aid in granting loans to the entity
  • or by shareholders interested in evaluating progress

4E6 - Accounting & Finance (9 decks)

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