ACCOUNTING

Question 1

Managerial accounting

Answer 1

used by business to evaluate and make decisions about current and future operations

Question 2

Financial accounting

Answer 2

used to by outsiders

Question 3

annual report and what it includes

Answer 3

yearly document that describes a firm’s financial status. includes:
- balance sheet
- income statement
- statement of cash flows

Question 4

Accounting equation

Answer 4

Equity (earnings[revenue - expenses]) + investment) = Assets - Liabilities
must always be balanced

Question 5

double entry accounting

Answer 5

Every transaction must be recorded in two or more accounts. For each transaction, the total amount debited must equal the total amount credited (balanced accounting equation)

Question 6

Different Assets

Answer 6

• current assets
• inventory
• property, plant and equipment

Question 7

Balance sheet:

Answer 7

Balance sheet: assets, liabilities, owner’s equity
balance sheet = summarizes a firm’s financial position at a specific point in time. Reports assets, liabilities and owner’s equity.

Question 8

Assets

Answer 8

listed in order of liquidity

Question 9

Liabilities

Answer 9

listed from short term to long term

Question 10

owner’s equity in balance sheet

Answer 10

all of company’s assets - liabilities

Question 11

current assets

Answer 11

= assets that can be converted to cash in a year

Question 12

fixed asstes

Answer 12

long term assets

Question 13

intangible assets

Answer 13

long term assets with no physical existence (ex: patents)

Question 14

def of liabilities

Answer 14

liabilities = amounts a firm owes to creditors

Question 15

What is included in owners’ equity

Answer 15

owner’s equity = owner’s total investment in the business

Question 16

Income statement

Answer 16

summarizes the firm’s revenues and expenses: net profit or net loss

Question 17

• costs of goods sold

Answer 17

expense of producing product

Question 18

• operating expenses

Answer 18

expense of running business

Question 19

Gross vs. net

Answer 19

gross.= before deducting expenses

Question 20

investment activities

Answer 20

(obtaining debt and equity financing)

Question 21

operating activities

Answer 21

(producing product),

Question 22

cash flow:

Answer 22

summary of the money flowing in and out of the firm

Question 23

what goes into cash flow

Answer 23

Statement of cash flows: operating activities, investing activities, financing activities

Question 24

Ratio analysis

Answer 24

Ratio analysis is a quantitative method of analysing company’s finance by studying its financial statements.

Question 25

• liquidity

Answer 25

how quickly a company can pay off its debts)

Question 26

• profitability

Answer 26

how well a company uses its resources to generate profit)

Question 27

• activity

Answer 27

(how quickly a firm converts resources to sales)

Question 28

• debt

Answer 28

(how much a company has borrowed)

Question 29

Accounting flow of information

Answer 29

internal accountants prepare information -> external accountants verify -> external decision makers use information

Question 30

Financial statements

Answer 30

balance sheet, income statement, statement of cash flows

Question 31

Ratio analysis

Answer 31

anaylsing firm’s finance by its financial statements

Question 32

Pro-forma financial statements

Answer 32

future forecasts