Basic Accounting Flashcards
What is financial accounting?
A rule based discipline
Primarily focuses on external users
Who are the primary users of financial accounting information?
- Owners or potential investors
- Lenders
- Regulatory agencies such as the IRS and the SEC
What is managerial accounting?
A non-rule based discipline
Primarily focuses on internal users
Who uses managerial accounting information?
Managers
How is financial accounting information communicated to users?
- Balance sheet
- Income statement
- Statement of cash flows
GAAP is authoritative guidance established by:
FASB and the SEC
What can a business do to ensure that its financial information is reliable?
- Maintain an internal audit staff
- Engage external auditors to conduct an audit
- Comply the the Sarbanes-Oxley act
What is a CPA?
Certified public accountant
What is the basic accounting equation? And what basic financial statement is it used for?
Assets = liabilities + owners equity
Balance sheet
The three basic financial statements are:
- Balance sheet
- Income statement
- Statement of cash flows
The main purpose of a financial statement audit by a CPA firm is:
To verify that financial statements are in accordance with GAAP
What does an income statement consist of?
Revenue
Expenses
A statement of cash flows consists of:
- Cash flows from operations
- Investing
-Financing
___________________________
-Net cash flow
Which financial statement includes revenues and expenses?
Income statement
What are the advantages of using debt capital?
- Tax deductibility
- Debt does not dilute control of the firm
- Lowers costs of capital
