Chapter 1 Flashcards
Stockholder meaning
Shareholder; an owner of shares in a company
Creditor meaning
A person or company to whom money is owed
Interest meaning
Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt
Dividends meaning
A sum of money paid regularly by a company to its shareholders out of its profits/reserves
Forms of internal decision makers
Managers
Forms of external decision makers
Stockholders and creditors
What are the 4 basic financial statments?
Balance sheet, income statement, statement of stockholder’s equity and statement of cash flows
What does the balance sheet show?
Assets = liabilities + stockholders’ equity
What are the assets in a balance sheet?
Cash, accounts/notes receivable, inventories and property, plant, equipment, short/long-term investments, supplies, prepaid expenses, intangibles, building and land
What are the liabilities in a balance sheet?
Accounts payable, tax payable, bonds payable, unearned revenue and notes payable to banks
What are the stockholders’ equity in a balance sheet?
Common stock and retained earnings
What is the income statement equation?
Net income = revenues - expenses
What are the 3 business activities?
Financial activities, investing activities and operating activities
Where does the financing for a business come from?
Stockholders and creditors
What are advantages of a corporation?
Limited liability, continuity of life, ease of transferring ownership, opportunity to raise large amounts of money
What are disadvantages of a corporation?
Double taxation
What are different types of business entities?
Sole proprietorship, partnership, corporation
What is the current ratio?
Current assets/current liabilities
What are the revenues in an income statement?
Sales revenue, service revenue, rental revenue, etc.
What are the expenses in an income statement?
Cost of goods sold, wages expenses, rent, depreciation, income tax, etc.
What is the income statement equation?
Revenues - expenses = net income
Which statement is completed first?
Income statement is prepared first, then it rolls into the balance sheet
How is the income statement relate to the statement of stakeholders’ equity ?
Net income from the income statement results in an increase in ending retained earnings on the statement of stockholders’ equity
What does the income statement show?
Statement of operations that reports revenues, expenses, and net income for a stated period of time
What does the statement of stockholder’s equity show?
Explains changes in stockholders’ equity accounts that occurred during a specific period of time
What does the statement of cash flows show?
Reports inflows and outflows of cash for a stated period of time
Why is GAAP necessary?
Necessary for accurate interpretation of the numbers in financial statements.
What is the equation for the statement of stockholder’s equity?
Beginning balance + increases - decreases = ending balance
What is the equation for the statement of cash flows?
+/− Cash Flow from operating activities
+/− cash Flow from investing activities
+/− cash Flow from financing activities = net change in cash
How is the statement of stockholder’s equity related to the balance sheet?
Ending retained earnings from the statement of stockholders’ equity is one of the two components of stockholders’ equity on the balance sheet
How is the statement of cash flows related to the balance sheet?
The change in cash on the cash flow statement added to the beginning-of-the-year balance in cash equals the end- of-year balance in cash on the balance sheet
What is the CPA?
A professional designation is granted only on completion of requirements specified by the state that issues the license
What are the different employment opportunities in the accounting profession?
Professional designations - CPA, CMA,
CIA
Practice of public accounting
Employment by organizations
Employment in the Public and Not-for-Profit Sector
What are the operating activities?
Cash flows directly related to earning income, such as cash paid to suppliers and employees
What are the financing activities?
Cash flows directly related to the financing of the enterprise, such as the payment of money to investors and creditors
What are the investing activities?
Cash flows related to acquisition/sale of the company’s plant, equipment and investments
