AC11 Week 1 Flashcards
What is accounting?
A system providing financial information about business transactions to users for decision-making.
What are the three basic activities in accounting?
Identify, Record, Communicate.
Does bookkeeping include all accounting processes?
No, bookkeeping is just part of accounting (mainly the recording).
Name the 5 main branches of accounting.
Financial, Cost, Management, Social, Tax.
What’s the primary purpose of Financial Accounting?
To provide relevant financial information to external users (investors, creditors, regulators).
Difference between Financial and Management Accounting?
Financial accounting focuses on external reporting, whereas management accounting aids internal decision-making.
Who are internal users of accounting data? Give examples.
Individuals within a company (owners, managers, employees) who use data for operational and strategic decisions.
Who are external users of accounting data?
Investors (assessing ownership) and creditors (evaluating credit risks).
What is the basic accounting equation?
Assets = Liabilities + Stockholders’ Equity.
Define Assets, Liabilities, and Stockholders’ Equity.
Assets: What the business owns.
Liabilities: What the business owes (debts).
Stockholders’ Equity: Ownership claim (Assets minus Liabilities).
How does liquidation affect liabilities and equity?
Liabilities (creditors) are paid first, equity holders are paid last.
What qualifies as a business transaction?
An economic event that changes the company’s financial position (assets, liabilities, or equity).
Give an example of a non-transaction.
Discussing a new product design (no financial change occurs).
True or False: A transaction affects only one side of the accounting equation.
False; transactions have a dual effect and both sides remain balanced.
Name 4 components affecting Stockholders’ Equity.
Investments by stockholders (increases equity), Revenues (increases equity), Dividends (decreases equity, not an expense), Expenses (decreases equity).
Name the 4 main financial statements.
Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows.
What is Net Income?
Revenues minus Expenses.
Which financial statement reports profitability over a period?
Income Statement.
What does the Retained Earnings Statement show?
Changes in retained earnings over the same period as the income statement, including dividends.
Which financial statement is a snapshot at a specific date?
Balance Sheet.
What does the Statement of Cash Flows provide?
Information about cash receipts and payments over a period, answering where cash comes from and how it was spent.
What are GAAP?
Generally Accepted Accounting Principles, universal standards guiding financial reporting.
Name the three main standard-setting bodies.
Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC), International Accounting Standards Board (IASB).
What accounting standards are used in Europe?
International Financial Reporting Standards (IFRS).
