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Accounting > Accounting Basics > Flashcards

Accounting Basics Flashcards

1
Q

What are four fundamental characteristics of accounting?

A

Quantitative: numbers
Financial: Money
Useful: practical, not theoretical
Decisions : Use the past to change the future.

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2
Q

How old is accounting?

A

7,000 year old clay tokens inventorying possessions have been found.

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3
Q

What are the four kinds of accounting?

A 
1 Bookkeeping
2 Financial accounting, 
 summaries for outsiders
3 Managerial accounting for insiders
4 Tax accounting
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4
Q

Define bookkeeping

A

Bookkeeping is the preservation of a systematic, quantitative record of an activity.

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5
Q

What is financial accounting?

A

Reporting results to people outside of the business or organization. Summaries for outsiders.

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6
Q

What are the fundamental reports give to outsiders by a company to raise money from strangers?

A

Balance sheet and income statement

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7
Q

What is managerial accounting?

A

Detailed data for use by insiders on a daily basis. Often confidential. It is data to evaluate different parts of the company..

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8
Q

How can accounting be a competitive tool?

A

Good data allows more informed marketing, better pricing, budgeting, performance evaluation.

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9
Q

How many sets of books do companies keep?

A

Three

  1. Financial
  2. Managerial
  3. Tax reporting
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10
Q

What is a quick way to define bookkeeping?

A

Organizing raw data

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11
Q

Who are the key users of financial accounting?

A

Lenders and investors

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12
Q

How do strangers gain confidence to lone money to other strangers?

A

Through studying financial accounting reports

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13
Q

What are you buying when you are an investor?

A

You are buying the future of the company, based on an analysis of the past records to determine potential.

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14
Q

What do lenders want to know?

A 
Will the loan be repaid?
What is:
Current income
Existing obligations
Existing assets
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15
Q

What do investors want to know?

A

Is the business profitable now?

What is the potential for the future?

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16
Q

Who else besides lenders and investors use financial data?

A 
Suppliers
Customers
Employees
Competitors
Government agencies
Politicians
The Press
John Klauder
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17
Q

What is a balance sheet?

A

A listing of an organizations assets and liabilities

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18
Q

What are assets?

A

Economic resources

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19
Q

What are liabilities?

A

Economic obligations

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20
Q

What is income statement?

A

How much money did you make?

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21
Q

What is statement of cash flow?

A

Say it slowly

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22
Q

What is the accounting equation?

A

Assets = Liabilities + Equity

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23
Q

In the accounting equation, what do the liabilities and equity represent?

A

They represent where you got the money to buy assets. Was it borrowed (a liability) or paid for (from equity)?

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24
Q

What is an asset?

A

Resources, either owned or controlled by a company that will likely provide future benefit.

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25
Q

What are liabilities?

A

Liabilities are obligations that may require sacrifice of future economic benefit in the form of transferring assets or providing services.

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26
Q

What is owners equity?

A

Owners Equity is the amount the owners originally invested in the business plus how much profit they have left in the business; ownership interest in the company’s assets.

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27
Q

What are other names for owners’ equity?

A

Paid in Capital
= Capital Stock
= Capital Contributions

Retained Earnings

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28
Q

What are retained earnings?

A

Profits kept in business to used to buy assets.

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29
Q

What are the limitations of the balance sheet?

A

Often report original costs, not current value.

Some economic assets are not reported in balance sheet.
Intangible Assets: Co. Name & Logo, Loyal customers

30
Q

Are intangible assets recorded well on a balance sheet?

A

NO

31
Q

Is the book value of a company equal to the market value of a company?

A

Not necessarily

32
Q

Explain balance sheets and income statements in terms of time.

A

A balance sheet describes a point in time and an income statement describes a period in time.

33
Q

What two items does an income statement list?

A

Revenues and Expenses

34
Q

What is the income statement equation?

A

Revenues - expenses = income

35
Q

What are revenues?

A

Amount of assets created from the sale of goods or services.

36
Q

What are expenses?

A

Amount of assets consumed in generating revenues; caused when liabilities are created in generating revenues.

37
Q

What is net income?

A

Overall measure of a company’s economic performance during a period; the difference between revenues and expenses for that period.

38
Q

What is earnings per share (EPS)?

A

Net income

divided by

Outstanding number of shares of stock

39
Q

What is the most common way of valuing company?

A

Earnings per share (EPS)

40
Q

What is another term for net income?

A

Income from continuing operations

41
Q

What are the top and bottom lines?

A

Top line is sales on an income statement

Bottom line is net income on an income statement

42
Q

What are the three categories in a statement of cash flows?

A

Operating
Investing
Financing

43
Q

What is a cash cow?

A

A company that can pay all investing costs needed and still have cash left over.

44
Q

What is most important number in Statement of Cash Flows?

A

Net cash provided by operating activities

top line

45
Q

What does financial accounting focus on?

A

Providing information to people outside the company.

46
Q

Who is the primary audience for financial accounting?

A

lenders and investors

47
Q

What are the three reports in financial accounting?

A

balance sheet
income statement
statement of cash flows

48
Q

What are the three kinds of cash flows?

A

operating activities
investing activities
financing activities

49
Q

What is managerial accounting about?

A

communicating financial information to people inside the company

50
Q

In managerial accounting what are the two basic kinds of costs?

A

Direct
(materials, labor)

Overhead
(building, taxes etc.)

51
Q

What is a benefit of break even analysis?

A

Tempers the optimism of entrepreneurs

52
Q

Why Budget?

A

To identify and solve problems in advance

53
Q

What are benefits of cash budget?

A
  • Advance arrangements
  • Realistic targets
  • Hope
  • Identify and solve problems in advance
54
Q

What do you need to be careful of in performance evaluation?

A

What you measure

55
Q

What must you remember in performance evaluation?

A

You get exactly what you measure.

56
Q

What is a balanced scorecard?

A

A way of measuring all of your internal business details.

57
Q

What is the importance of a mission statement?

A

It establishes what is important to us.

58
Q

What do mission statements show?

A

Where the accounting measures should be pointing to.

59
Q

What is average tax rate?

A

The percentage of tax you pay on your total income.

60
Q

What is marginal tax rate?

A

The percentage of tax you will pay on the next dollar you make.

61
Q

Why is some income not taxed.

A

All systems recognize that there is a fixed cost of living which should not be taxed.

62
Q

Why is a sales tax regressive?

A

The lower your income, the higher your tax spending.

63
Q

What are tax deductions?

A

Expenditures that the government favors and encourages.

64
Q

What are personal and business deductions?

A

Personal = charity, IRA, mortgage interest

Business = legitimate expenses

65
Q

How are tax deductions useful?

A

They reduce taxable income.

66
Q

What is difference between tax deduction and tax credit?

A

Tax credit results in lower tax. It is deducted from total tax. Tax deduction is deducted from total taxable income.

67
Q

What are kinds of income?

A

Ordinary income

Capital gains income

68
Q

What are rationales for taxing capital gains at a lower rate?

A

Governments want to encourage investment

Taxes have already been paid on the money invested.

69
Q

What is a tax shelter?

A

A structure so income can be classified as capital gains income.

70
Q

What is the objective in tax accounting?

A

Follow the rules to comply with the law.

Accounting (2 decks)

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