ACCOUNTING Flashcards
Managerial accounting
used by business to evaluate and make decisions about current and future operations
Financial accounting
used to by outsiders
annual report and what it includes
yearly document that describes a firm’s financial status. includes:
- balance sheet
- income statement
- statement of cash flows
Accounting equation
Equity (earnings[revenue - expenses]) + investment) = Assets - Liabilities
must always be balanced
double entry accounting
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)
Different Assets
- current assets
- inventory
- property, plant and equipment
Balance sheet:
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.
Assets
listed in order of liquidity
Liabilities
listed from short term to long term
owner’s equity in balance sheet
all of company’s assets - liabilities
current assets
= assets that can be converted to cash in a year
fixed asstes
long term assets
intangible assets
long term assets with no physical existence (ex: patents)
def of liabilities
liabilities = amounts a firm owes to creditors
What is included in owners’ equity
owner’s equity = owner’s total investment in the business
Income statement
summarizes the firm’s revenues and expenses: net profit or net loss
- costs of goods sold
expense of producing product
- operating expenses
expense of running business
Gross vs. net
gross.= before deducting expenses
investment activities
(obtaining debt and equity financing)
operating activities
(producing product),
cash flow:
summary of the money flowing in and out of the firm
what goes into cash flow
Statement of cash flows: operating activities, investing activities, financing activities
Ratio analysis
Ratio analysis is a quantitative method of analysing company’s finance by studying its financial statements.
- liquidity
how quickly a company can pay off its debts)
- profitability
how well a company uses its resources to generate profit)
- activity
(how quickly a firm converts resources to sales)
- debt
(how much a company has borrowed)
Accounting flow of information
internal accountants prepare information -> external accountants verify -> external decision makers use information
Financial statements
balance sheet, income statement, statement of cash flows
Ratio analysis
anaylsing firm’s finance by its financial statements
Pro-forma financial statements
future forecasts
