Accounting Flashcards
What is accounting used for?
- Help decision-makers make good economic
decisions - Communicate financial consequences of business
decisions
For: Owners, customers, regulators, suppliers, lenders, tax authorities
Two standards
US-GAAPS
IFRS
Element definition: Asset
An asset is a present economic resource
controlled by the entity as a result of
past events.
An economic resource is a right that has
the potential to produce economic
benefits.
Element definition: Liability
A liability is a present obligation of the entity to
transfer an economic resource as a result of
past events.
For a liability to exist, three criteria must all
be satisfied:
(a) the entity has an obligation;
(b) the obligation is to transfer an economic
resource; and
(c) the obligation is a present obligation that
exists as a result of past events.
Element definition: Equity
Equity is the residual interest in the assets
of the entity after deducting all its
liabilities.
Element definition: Income
Income is increases in assets, or decreases
in liabilities, that result in increases
in equity, other than those relating to
contributions from holders of equity
claims.
Element definition: Expenses
Expenses are decreases in assets, or
increases in liabilities, that result in
decreases in equity, other than those
relating to distributions to holders of
equity claims.
Accounting equation:
Assets = Liabilities + Owners Equity
Order of assets on balance sheet
Most liquid first
Current = used in one operating cycle
Income statement definition
The Income Statement is a summary of inflows and outflows over a given
period. It reports a firm’s profits for a period of time.
Gross margin, Operating income, EBIT, Net income
The aggregation exercise
Debits and credits
Cash vs accrual accounting
Adjusting entries X5
Why we love the cash flow statement
The purpose of the Cash Flow Statement is to explain why and how
a company increased its cash balance (i.e. how much money the
company has on its bank accounts) over a given period of time.
Net book value
Net book value = histoical cost - Accumulated depreciation
Principle of revenue recognition
Sale of a car for cash. For £20,000, COGS £15,000
Unbundelling of products
Contra accounts
Bad debt expense and write offs
Future value/Preent value
Excel PV
Effective interest rate
Excel PMT
Interest expense recording
FX transactions
Non-monetary items: Rate at time of valuation
Monetary: Rate at date of transaction.
intangible vs tangible assets
Depreciation methods
Imparement loss/gain
Capitalizing vs expensing a cost
Working capital and current ratio definitions
AR turnover/days
Inventory turnover
Quick ratio
No time to sell!
AP turnover/days
Cash conversion cycle
Sustainable growth model
ROE
ROA
