Basic Accounting Flashcards
What is the accounting equation?
Assets = Liabilities + Owner’s Equity
What does the balance sheet show?
A snapshot of a company’s financial position at a specific point in time
What is revenue?
Total income from sales before expenses are deducted
What is net income?
Revenue – Expenses (also known as profit)
What is the income statement used for?
Shows a company’s revenues and expenses over a time period
Define ‘assets.’
Resources owned by a business (e.g., cash, inventory, equipment)
Define ‘liabilities.’
Amounts owed by a business to others (e.g., loans, accounts payable)
What is owner’s equity?
The owner’s claim on business assets after liabilities are paid
What is ROI (Return on Investment)?
(Gain from investment – Cost of investment) ÷ Cost of investment
What does the current ratio measure?
A company’s ability to pay short-term obligations
Formula: Current Assets ÷ Current Liabilities
What is a fixed cost?
A cost that does not change with the level of production (e.g., rent)
What is a variable cost?
A cost that varies depending on production output (e.g., raw materials)
What is the purpose of a cash flow statement?
To show the inflow and outflow of cash during a period
What is gross profit?
Revenue – Cost of Goods Sold (COGS)
What is the debt-to-equity ratio?
Total Liabilities ÷ Owner’s Equity — shows financial leverage
