Accounting Flashcards
What is a financial statement
A statement that shows a business’s profitability over a stated period of time(like a movie not a snapshot).
What is a fiscal year?
A fiscal year (FY) is a period that a company or government uses for accounting purposes and preparing financial statements.
Name the 3 types of businesses.
Manufacturing business, Service business, and retail/merchandising business.
Describe a service business:
Simplest type of accounting. A service provides intangible products, and services instead of goods. In an income statement, you would see the revenue and expenses. ex. theatre
Describe a merchandising business:
-A business that sells tangible goods.
-Buy inventory of goods and keep track of them.
-Often buy inventory on credit(pay for it later)
-Discount if they pay their bills early.
-Track inventory at the start of year, and how much they purchased, they they subtract to get COGS
Income statements show revenue, expenses, and cost of goods sold. ex. bath and body works
What are 4 sections of an income statement/
Revenue, expenses, COGS, Net profit
How do you tell if a business is successful base on an income statement?
Calculate the rate of return on net sales. (portion of business sales that are kept as profit).ex. higher rate=more profitable company.
How can businesses increase their ROS
- Increase price of goods
- Decrease cost of product inventory
- reduce cost of preparing product ex. if you manufacture.
Describe a manufacturing business.
Most complex accounting because it has 3 types of inventory and direct labour.
- raw materials inventory
- Goods in process inventory
- Finished goods inventory
- Direct labour= cost of making the good
What is a balance sheet?
A financial statement that shows the financial position of a business on a specific date. A snapshot of wether a business is financially strong.
What are three sections of balance sheet?
- Assets
- Liabilities
- equity
Types and definition of Assets
-Items of value owned by a business ex. cash, inventory, accounts receivables. 2 types= Current assets-easily converted into cash, ex. cash or inventory Long term(Capital assets)-Kept by a business for a long time ex. furniture
Types and definition of Liabilities
-Debts of business ex. accounts payable, loan payable, mortgage payable. 2 types=Current liabilities: payed within a year Long term(capital)liabilities:Take longer than a year to pay
What is Owner’s Equity?
Amount of assets remained in a business after liabilities are payed . ex. in corporation it would be called shareholders equity.
How can you tell if a company is doing well based on the balance sheet?
Calculate the working capital which indicates wether a business is able to pay for its short term debts using its short term assets.
What does the current ratio tell?
how many dollars of liquid assets a business has for every dollar of short term debt. An acceptable ratio is 2:1. Very low=company could not pay for short term debts quickly. Very high= Company might have too much money tied up in current assets.
What is a cashflow statement
shows the cash coming in, and the cash going out in a business over a period of time.”Like a movie”includes months. ex. cash sales, selling equipment, collected accounts receivable, paying salaries, paying rent, buying new equipment.
how will owner make sure that they make money on their investment?
By calculating the rate of return on average owner’s equity.
What is the ALOE formula?
assets-liabilities=owner’s equity
Cost of Goods Available For sale
Beginning Inventory+purchases
Cost of goods sold
COGAFS-ending inventory
Gross Profit
Revenue-COGS
Net Income
Gross Profit-Expenses
Working Capital
Current Assets-Current Liabilities
Current ratio
Current assets/Current liabilities
Rate of Return on Net Sales
Net income/revenueX100%
Average Owner’s Equity
Beginning Owner’s Equity+Ending owner’s equity/2
Rate of return on average owner’s equity
Net Income/average owner’s equityX100%
Net cash Flow
Total Cash in-Total cash out
Depreciation
Decrease in the value of assets
The matching principle
directs a company to report an expense and the related revenues at the same time on its income statement.
The cost principle
assets are recorded at the cash amount/ same amount that business payed to acquire them
Preauthorized Payments
Any agreement between a bank and an account holder whereby the account holder gives the bank permission to automatically debit the account by a certain amount every month.
Bookkeeping
Bookkeeping is the recording of financial transactions,
Double-entry bookkeeping
Double-entry accounting is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts.
What is accounting?
is the process of recording, analyzing and interpreting the economic activities of a business.
