Ch.1 Flashcards
Financial Accounting
System for measuring an enterprise’s financial performance
Language of business
4 Basic Financial Statements
- Balance Sheet
- Income Statement
- Owner’s Equity Statement
- Cash Flow Statement
Stakeholders (not too important)
Creditors (FOCUS)
Prospective Investors (FOCUS)
Managers
Owners
Government and Regulators
Unions
General Public
stakeholder
is a party that has an interest in a company and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees, customers, and suppliers.
Balance Sheet Equation
assets = liabilities + owner’s equity
What’s an ASSET?
A resource with economic value with expectation it will bring future benefit
What is a LIABILITY
A debt a party owes
What’s OWNER’S EQUITY
the owners investment in an asset after they deduct liabilities
2 types of organizations
- profit (private sector)
- non-profit (public sector)
Goals of Private Company
- survival (liquidity)
- growth
- profitability
Profitability
ability to generate net income
Synonyms of Net Income
Net Profit
Profit and Loss Statement
Net Income Formula
NI = Revenues - Expenses
Cash Basis
What you have been doing with personal finances
Cash flows in = revenues
Cash flows out = expenses
Accrual Basis
accounting method which payments are credited or debited when earned or incurred
Accrual Accounting Revenue
recognizes revenue when goods or services are delivered
(not when cash received)
Accrual Accounting Expenses
recognizes expenses when incurred
(not when cash is disbursed)
