CH 6: Investing and Financing Decisions Flashcards
what are the 3 balance sheet assumptions and 1 measurement concept
Assumptions:
-separate entity ass
-going concern ass
-monetary unit ass
Concept:
-historical cost concept
separate entity assumption
each business activity is accounted for separately from personal activities of the owners, ppl, and etc
going concern assumption
assumes the bus will continue operating in the foreseeable future long enough to meet its commitments
monetary unit assumptions
fnan statements are reported using the national unit
historical cost concept
balance sheet elements are recorded at their initial cost
acct equation
A= L + SE
assets
economic resources owned/ controlled by a company
Have measurable value/ expected to benefit the company by producing inflowing or reducing cash outflows in the future
current assets
resources the company will use/turn into cash within a year
Accts rec, inventory, supplies, prepaid exp, cash
Long term assets
assets to be used/turned into cash after a year
property/equipment, operating leisure right of use assets, intangibles, stocks and bonds
assets listed by…
liquidity
liabilities
Obligations from past transactions that are expected to be settled in the future by transferring assets/providing services
current liabilities
will be paid or settled within a year
accts pay, unearned rev, accrued exp, current lease libs
noncurrent liabilities
have due dates beyond a year
Notes payable, long term lease liabilities
liabilities listed by…
maturity
stockholders equity
represents the residual interest in the assets of the entity after subtracting liabilities
Combination of the financing provided by the owners (capital contributed) and by business operations
Financing provided by owner
-contributed capital
-the norm of ppl purchasing stock in the company and gaining common stock
Financing provided by operations
(capital or retained earnings)
Portion of profits reinvested in the businesses (not distributed to owners) is called retained earnings
losses/dividends decrease retained earnings
what are some things that are not reported in the balance sheet and where can they be found
-trademarks, patents, other intangible assets
-can be found in the footnotes
external event
Exchange of assets, good, or services by on party for assets,s services, or promises to pay from another parties
Ex- purchase of lipgloss
Internal event
Events that are not exchanges between the business and other parties but nevertheless have a direct and measurable effect on the entity
Ex- use of prepaid insurance
The chart of accounts
List of account titles and their uniquely identifying numbers
assets usually start with…
1
100-199
Cash usually 101
Decimals used for more specific
liabilities usually start with …
2
200–299
Decimals for more specifics
transaction analysis
the process of studying a transaction to determine its economic effect on the entity in terms of acct equation
every transaction has…
dual effects
meaning it affects more than 2 accounts
accounting cycle
1- analyze each transaction
2-record entries in the journal
3-post effects to the ledger
4-prepare trial balance
5-adjust revenues and expenses
6-prepare and disseminate financial statements
7-close income statement accounts
assets debit and credits
Have debit balances
Increase with debits
Decrease with credits
liabilities debit and credits
Have credit balances
Increase with credit
Decrease with debits
stockholders equity debits and credits
Have credit balance
Increase with credit
Decrease with debits
journal
contains original entries for transactions in sequential order
T accounts
Tool for summarizing transition effects and determining the balances for individual accounts
Strats with beginning balance
D on left C on right
Ending is written on correct side
trial balance
Lists all ledger acct in fnan statement order
with their ending D/C balance
Order ( assets. Lias, SE, revenues, expenses)
Debit and credits in trial balance should equal
general ledger
formal accounting record that tracks every business transaction for each specific account
fnan statement order
( assets. Lias, SE, revenues, expenses)
classified balance sheet
Balance sheet is prepared from trial balance
Has name of company, title, date, and dollars
Group assets into current and noncurrent groups
current ratio
Current assets/ current liabilities
Shows if a company has the ST resources to pay its ST debt
High ratio is good
