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Accounting Block 2 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Financial accounting

A

focused on decision-makers outside the company

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2
Q

managerial accounting

A

focused on decision-makers inside the company

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3
Q

what can create ethical pressure on management

A

preparation of financial statements, IFRS, auditors

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4
Q

preparation of financial statements

A

involves and understanding of complex accounting rules and a significant number of assumptions and estimation

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5
Q

IFRS

A

allows for differing accounting treatments for the same transaction

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6
Q

corporation

A

a company that has many owners who are not concerned with managing the daily operations of a company

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7
Q

partnerships

A

has two or more parties as co-owners and each owner is a partner

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8
Q

sole proprietorship

A

an entity with a single owner

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9
Q

Income

A

revenues - expenses

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10
Q

accounting equation

A

liabilities + equity

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11
Q

balance sheet

A

represents the company’s financial position

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12
Q

income statement

A

represents the company’s financial performance

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13
Q

changes in equity statement

A

represents the beginning balance of equity plus net income minus dividends that are paid and minus reclassifications and other reserves

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14
Q

cash flow statement

A

reports cash flows under operating, investing and financial activities

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15
Q

how the financial statements link together?

A
  1. the cash flow statement links beginning and ending cash of the balance sheet
  2. The income statement links beginning and ending of the retained earnings in the change of equity statement
  3. The statement of changes in equity links the beginning and ending in equity in the balance sheet
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16
Q

return on equity ratio

A

ROE = (net income)/average total income

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17
Q

debt-to-equity

A

D/E = total liabilities/total equity

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18
Q

BIDE

A

Beginning retained earnings + net income – dividends = ending retained earnings

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19
Q

Net ratio

A

Net ratio = Dividend/net income

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20
Q

assets

A

economic resources controlled by the entity to produce future economic benefits

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21
Q

Current assets

A

expected to be converted to cash, sold or consumed during the upcoming twelve months

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22
Q

example of current assets

A

cash/cash equivalents; accounts receivables; notes receivables; inventory; prepaid expenses

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23
Q

non-current assets

A

long-term assets and long-term investments which will not be converted into cash within next year

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24
Q

example of non-current assets

A
  1. Fixed assets: PPE
  2. long-term investments
  3. Intangible assets
  4. Other non-current assets (long-term prepayment, deferred tax assets)
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25
Q

liabilities

A

obligations to pay and expected to result in an outflow of economic benefits

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26
Q

current liabilities

A

obligation to pay within the next twelve months

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27
Q

example of current liabilities

A
  1. accounts or trade payable: amount a company has to pay to its creditors
  2. accrued liabilities: an expense that the company has not yet paid for
  3. Short-term debt: borrowings that have to be paid within a year
  4. Deferred revenues: when the company collects cash from its consumers in advance of ‘earning’ the revenue
  5. Current maturities of long-term debt: the part of long-term that has to be paid this year
28
Q

non-current liabilities

A

obligations that are most likely to require an outflow of economic benefits after one year

29
Q

example of non-current liabilities

A
  1. Long-term debt: borrowings that are due beyond the financial year
  2. Other non-current liabilities
30
Q

equity

A

residual interest in the entity’s assets after deducting liabilities, which represent the residual claim of the shareholder to entity assets

31
Q

example of equity

A
  1. share capital/capital stock
  2. contributed surplus/share premium: the extra value besides the value of a share that has been received from the primary owner
  3. treasury shares: shares that are brought back by the firm
  4. retained earnings
  5. Accumulated other comprehensive income or loss: can include various reserves and non-controlling interests. These are changes in equity that are not mentioned on the income statement
32
Q

contributed capital

A

share capital surplus + treasury shares

33
Q

earned capital

A

retained earnings + accumulated other comprehensive income/loss

34
Q

revenue

A

net sales and income-generating activities (financial services, travel services, rental income, franchise fees)

35
Q

expenses

A

cost of goods sold

36
Q

accrual accounting

A

If the transaction has not been made, transaction is recorded

37
Q

gross profit

A

difference between the cost of goods sold and the revenue

38
Q

1st way to measure liquidity

A

net working capital = current assets - current liabilities

39
Q

2nd way to measure liquidity

A

curent ratio = total current assets/total current liabilities

40
Q

3rd way to measure liquidity

A

Quick ratio = (cash + short term securities + accounts receivable)/(current liabilities)

41
Q

accounting cycle

A

a sequence of activities to accumulate and report financial statements

42
Q

chart of accounts

A

lists the titles and numbers of all accounts found in the general ledger

43
Q

deferral adjustments

A

allocating assets to expense and allocating unearned revenues to revenue

44
Q

accrual adjustments

A

accruing expenses and accruing revenues

45
Q

deferred revenue

A

allocating unearned revenue to revenue

46
Q

prepaid expenses

A

allocating assets to expenses

47
Q

depreciation

A

allocating costs of equipment to the periods benefiting from their use

48
Q

straight-line depreciation

A

process of diving the asset cost by estimated useful life to find the annual depreciation expense

49
Q

contra accounts

A

used to record reductions in or offsets against a related account

50
Q

accumulated depreciation

A

contra asset reported in the BS which enables users to estimate asset age

51
Q

accrued revenues

A

companies often provide services or earn income during a period that is neither paid nor billed at the end of it

52
Q

accrued expenses

A

companies often incur expenses before paying for them

53
Q

temporary accounts

A

consist of revenues and expenses and accumulate data that relates to a specific accounting period

54
Q

closing process

A

retained earnings account can be used to close the temporary revenue and expense accounts

55
Q

cash equivalents

A

short-term, highly liquid investments that are easily convertible into a known amount of cash and are subject to an insignificant risk of change in value

56
Q

operating activities (cash flow)

A

selling goods or rendering service

57
Q

investing activities

A

involve the acquisition and disposal of a PPE assets, intangible assets, the purchase and sale of gov securities and securities of other company

58
Q

financing activities

A

when the company receives cash from shareholders, returns cash to shareholders, borrows from creditors, and repays amounts borrowed

59
Q

cash flow formula 1

A

cash flow = net income - change in accounts receivable + change in unearned revenue

60
Q

cash flow formula 2

A

Cash flow = net income – change in inventory + change in accounts payable

61
Q

cash flow formula 3

A

Cash flow + change in prepaid insurance = net income

62
Q

cash flow formula 4

A

Cash flow = net income + depreciation expense

63
Q

cash from operations

A

Net income + depreciation expense + noncash operating expenses – change in operating assets + change in operating liabilities = cash from operations

64
Q

operating assets

A

receivables, inventories, prepaid expenses, similar assets

65
Q

operating liabilities

A

accounts and wages payable, accrued expenses, unearned revenues, taxes payable, interest payable, similar items

Accounting Block 2 (1 decks)

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