Accounting Flashcards
Define accounting
The measuring, classifying and analyzing and communicating of financial information to help peope inside and outside a company make good financial decisions
Are accounting and bookkepping the same?
No, bookkepping is the recording of a firm’s financial transactions
What are the 2 types of accounting? Give examples.
- Managerial: managers and employees
2. Financial: stockholders, suppliers, lenders
What are the main financial statetements?
Balance sheet and income statement
What is the accounting equation?
Assets = Liabilities + Owner’s equity
Define assets
What you have/ own, cash, car, …
Define liabilities
What you owe, loans, debts, …
Define owner’s equity
owner’s investment plus earnings (net worth after you sell all assets and pay debts)
What is a balance sheet?
A snapshot of the company’s financial position at a single point in time
Define current assets as opposed to fixed assets.
Current: Can be converted into cash in one year or less
(accounts receivable, inventory)
fixed: expected to be turned into cash in more than a year (equipment, land and property)
Define current liabilities as opposed to long-term liabilities
Current: will be due within 1 year (accounts payable)
Long-term: debts due in more than 1 year
How is Owner’s equity described on the balance sheet?
- Common stock
- Retained earnings
What is an income statement?
It summarizes a firm’s operations over a given period of time in terms of profit and loss
What is the main equations of the income statement?
Revenue - cost of goods sold = gross profit
gross profit - expenses = net income
What do you find on an income statement
Sales revenue - Cost of goods sold (materials, labor) - Operating expenses (administrative, marketing, selling, depreciation) =Net income
