Accounting Foundations: Fundamentals Flashcards
What is bookkeeping?
Gathering the information systematically
What is financial accounting?
This is reporting to people outside your organization. Summary reports, not the details, it’s not people who are there everyday, but it’s people who want to know how you’re doing.
What is managerial accounting?
Those are the detailed, secret data that individuals use inside their organizations to make decisions, detailed decisions.
What are the 3 Primary Financial Statements?
The Balance Sheet The Income Statement The statement of Cash Flows
What is the Accounting Equation?
Assets = Liabilities + Equity
What is the purpose of the Accounting Equation?
To know the sources of your assets
What is it called when owners invest in their own business out of their own pocket?
Paid-in capital
What is Owner’s Equity?
Paid-in capital and retained earnings
What is retained earnings?
Profits kept in the business and used to buy assets
If you bought a building 50 years ago, that cost 50.000 DKK, but today is worth 2 million DKK, then what do you write on the balance sheet?
50.000 DKK - The balance sheet only takes costs into account, not value
Are intangible assets recorded on the balance sheet?
No, things like Brand value, logo value, customer lists and so on, does not appear on a balance sheet
What is the difference between book value and market value?
The market value is what the market is willing to pay for your company, where as the book value is all the assets you have recorded in the balance sheet
What is a balance sheet?
Shows what you have in assets and liabilities at a certain point of time.
What is an Income Statement?
Shows how much you made over a period of time
What are the requirements in the United States for large companies in terms of Income Statement?
You need to make one every quarter and once a year
What does the Income Statement contain?
Revenues - Expenses = Net income
What does Revenue mean?
The amount of assets created from the sale of goods or services
For expenses that will not be paid until next year, are they registered as expenses this year or next year?
Yes, they are registered as expenses
What is Net Income?
Company’s overall measure of economic performance
What is EPS / Earnings per share?
Net income divided by shares or stocks in the compnay
What is top line?
Sales
What type of Statement is this?
Income Statement
What is bottom line?
Net income
Which 3 categories do you have in the Statement of Cash Flows?
Operating activities, Investment activities and Financing activities
What is this?
A Statement of Cash Flows
What is this?
A Statement of Cash Flows
What is the most commonly used reference number in accounting?
Earnings per share (EPS)
Which 4 types of typical Managerial Accounting applications are there?
- Budgeting
- Product costing
- Break even
- Performance evaluation
What is Product Costing?
Stating the costs to make a product in
- Direct materials
- Direct labor
- Overhead
What are Overhead Costs?
The costs that are not directly related to the Product Cost, such as Building, Insurance, Salary to a supervisor, etc.
How do you assign Overhead Costs?
More worker hours = More overhead
Or
More machine hours = More overhead
What is a Contribution Margin?
How much you get to keep
What is brakeven analysis?
Calculation on what you need in sales in order to not loose money / Go breakeven
What is the benefit of keeping budgets?
Budgets help you identify and solve problems in advance
What is this?
A budget
