Accounting Chp 1&2 Flashcards
Intro to Financial Reporting
Financing Activities
borrowing or repaying debt, short term bank loans, issuing or repurchasing stock and paying dividends
Investing Activities
Buying and selling noncurrent assets and investments
Operating Activities
primarily with customers, suppliers, interest payments on debt, and earning on investments.
Management Accounting
information for internal decision makers
Finance Accounting
Accounting for external decision makers
4 Basic Financial Statements
balance sheet, income statement, statement of stockholders equity, statement of cash flows
Balance Sheet
Amount of assets, liabilities, and stockholders equity
Income Statement
reports revenue less the expenses of the accounting period
Stockholders Equity
Stockholders’ equity refers to the assets remaining in a business once all liabilities have been settled. This figure is calculated by subtracting total liabilities from total assets; alternatively, it can be calculated by taking the sum of share capital and retained earnings, less treasury stock.
Cash Flow Statement
reports inflows and outflows of cash during operating, investing, and financing activities
Balance Sheet Equation
Assets = Liabilities + Stockholders’ Equity
Income Statement Equation
Revenues - Expenses = Net Income
Retained Earnings Equation
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
Cash Flow Equation
+/- Cash from operating activities
+/- Cash from investing activities
+/- Cash from financing activities
= Change in Cash
+ Beginning Cash Balance
= Ending Cash Balance
GAAP
Generally Accepted Accounting Principles
SEC
Securities and Exchange Commission
FASB
Financial Accounting Standards Board
IFRS
International Financial Reporting Standards
Ponzi Scheme
using cash from newer investors to pay off older ones
separate entity assumption
Business transactions are accounted for separately from the transactions of the owners
Going Concern Assumption
The assumption that the company will continue in operation for the foreseeable future.
Monetary Unit Assumption
The assumption that requires the items on the financial statements to be measured in terms of a monetary unit.
Assets
Economic resources (things of value) owned by a firm.
Liabilities
what a company owes
Current Liabilities
liabilities due within a short time, usually within a year
current assets
cash and other assets expected to be exchanged for cash or consumed within a year (inventory is always a current asset)
Stockholders’ Equity
The owners’ equity in a corporation. (Financing Provided)
Financing Provided by Owners
(contributed capital) owners invest in the business by providing cash and sometimes other assets and receive in exchange shares of stock as evidence of ownership
Financing Provided by Operations
earned capital (retained earnings) profits that could either be distributed to owners or retained
Transactions
An exchange or an event that has a direct economic effect on the assets, liabilities, or stockholders’ equity of a business.
External Events
exchanges of assets, goods, or services by one party for assets, services, or promises to pay (liabilities) from one or more other parties
Internal Events
certain events that are not exchanges between the business and other parties but nevertheless have a direct and measurable effect on the entity. Example using up insurance paid in advance and using buildings and equipment over several years
Accounts
A standardized format that organizations use to accumulate the dollar effects of transactions on each financial statement item.
Chart of Accounts
a list of accounts used by a business
Transaction Analysis
the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation
2 Principles
Every transaction affects at least two accounts and the accounting equation must remain in balance after each transaction
Dual Effect
the principle stating that all business transactions are recorded as having at least two effects on the basic accounting elements (assets, liabilities, and owner’s equity)
Accounting Cycle
The series of accounting activities included in recording financial information for a fiscal period
General Journal
the chronological accounting record of the transactions of a business
General Ledger
a record of effects to and balances of each account
Debit
An amount recorded on the left side of an account
Credit
An amount recorded on the right side of an account
Current Ratio
current assets divided by current liabilities
DEALER
Dividends +Expenses + Assets = Liabilities + Owners Equity + Revenue
