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Financial Accounting > 2. Understanding Financial Statements > Flashcards

2. Understanding Financial Statements Flashcards

1
Q

What is net income?

A

The profit earned by a company after all expenses and taxes have been deducted.

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2
Q

What is OCI?

A

Other Comprehensive Income (OCI) includes revenues, expenses, gains, and losses that are excluded from net income.

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3
Q

What is the purpose of a balance sheet?

A

It shows a company’s financial position at a specific point in time, detailing assets, liabilities, and equity.

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4
Q

What are current assets?

A

Assets that are expected to be converted into cash or used up within one year.

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5
Q

What are non-current assets?

A

Assets that are not expected to be converted into cash within one year, like property, equipment, or long-term investments.

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6
Q

What are liabilities?

A

Financial obligations a company owes to others.

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7
Q

What is equity?

A

The residual interest in the assets of the company after deducting liabilities.

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8
Q

What are operating activities?

A

Business activities related to the primary operations of the company, such as selling goods or services.

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9
Q

What are investing activities?

A

Activities related to the purchase or sale of long-term assets or investments.

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10
Q

What are financing activities?

A

Activities that result in changes to the size and composition of the equity and borrowings of the company.

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11
Q

What is a cash flow statement?

A

A financial statement that shows the cash inflows and outflows from operating, investing, and financing activities.

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12
Q

What is revenue?

A

Income generated from normal business operations, such as sales of goods or services.

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13
Q

What are expenses?

A

The costs incurred in the process of earning revenue, including rent, salaries, and utilities.

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14
Q

What is gross profit?

A

The difference between revenue and the cost of goods sold (COGS).

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15
Q

What is depreciation?

A

The allocation of the cost of a tangible asset over its useful life.

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16
Q

What is amortization?

A

The process of expensing the cost of an intangible asset over its useful life.

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17
Q

What is the income statement?

A

A financial statement that shows a company’s profitability over a specific period, detailing revenues, expenses, and net income.

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18
Q

What is working capital?

A

The difference between a company’s current assets and current liabilities, used to measure liquidity.

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19
Q

What are long-term liabilities?

A

Obligations that are due for payment beyond one year, such as bonds or long-term loans.

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20
Q

What is retained earnings?

A

The portion of a company’s profit that is kept in the business rather than distributed to shareholders as dividends.

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21
Q

What is the purpose of financial statements?

A

To provide information about a company’s financial performance, position, and cash flows to stakeholders.

22
Q

What are intangible assets?

A

Non-physical assets such as patents, trademarks, and goodwill.

23
Q

What is liquidity?

A

The ability of a company to meet its short-term financial obligations.

24
Q

What is solvency?

A

The ability of a company to meet its long-term financial obligations.

25
Q

What is a contingent liability?

A

A potential liability that may occur depending on the outcome of a future event.

26
Q

What is goodwill?

A

An intangible asset that arises when a company acquires another for more than its identifiable net assets.

27
Q

What is the matching principle?

A

An accounting principle where expenses are matched with the revenues they generate in the same period.

28
Q

What is accrual accounting?

A

Accounting method where revenues and expenses are recorded when they are earned or incurred, not when cash is exchanged.

29
Q

What is historical cost?

A

The original purchase price of an asset, recorded on the balance sheet.

30
Q

What is market value?

A

The current value at which an asset can be sold or exchanged in the marketplace.

31
Q

What is the accounting equation?

A

Assets = Liabilities + Equity.

32
Q

What are accounts receivable?

A

Money owed to a company by its customers for goods or services delivered but not yet paid for.

33
Q

What are accounts payable?

A

Money a company owes to its suppliers for goods or services received but not yet paid for.

34
Q

What is the cost of goods sold (COGS)?

A

The direct costs associated with producing or purchasing the goods sold by a company.

35
Q

What is a fiscal year?

A

A one-year period that companies use for financial reporting and budgeting, which may not align with the calendar year.

36
Q

What is a trial balance?

A

A summary of all ledger accounts with their balances to ensure that debits equal credits.

37
Q

What is inventory?

A

The goods and materials a company holds for the purpose of resale.

38
Q

What is shareholder equity?

A

The owners’ claim on the assets of the company after all liabilities have been paid off.

39
Q

What is a dividend?

A

A distribution of a portion of a company’s earnings to its shareholders, usually in the form of cash or additional shares.

40
Q

What are prepaid expenses?

A

Payments made in advance for goods or services to be received in the future, recorded as assets until used.

41
Q

What is a classified balance sheet?

A

A balance sheet that organizes assets and liabilities into current and non-current categories.

42
Q

What is a current liability?

A

A liability that is expected to be settled within one year.

43
Q

What is accumulated depreciation?

A

The total amount of depreciation that has been recorded against an asset over its useful life.

44
Q

What is book value?

A

The value of an asset or company as recorded on the balance sheet, calculated as cost minus accumulated depreciation.

45
Q

What is par value of a stock?

A

The nominal or face value of a share of stock as stated in the corporate charter.

46
Q

What is treasury stock?

A

Shares that were issued by the company and later reacquired, reducing shareholders’ equity.

47
Q

What is a credit in accounting?

A

An entry on the right side of a ledger that decreases assets or increases liabilities and equity.

48
Q

What is a debit in accounting?

A

An entry on the left side of a ledger that increases assets or decreases liabilities and equity.

49
Q

What is an audit?

A

An independent examination of financial statements to ensure accuracy and compliance with accounting standards.

50
Q

What is a cash equivalent?

A

Short-term, highly liquid investments that are easily convertible to known amounts of cash, such as treasury bills.

Financial Accounting (7 decks)

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