CHAPTER 1 Flashcards

1
Q

What is financial accounting?

A

Financial accounting is the process of recording, summarizing, and reporting financial transactions to provide useful information to external users.

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2
Q

Who are the primary users of financial information?

A

Primary users include investors, creditors, management, regulators, and other stakeholders.

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3
Q

What is the basic accounting equation?

A

Assets = Liabilities + Equity.

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4
Q

What are the four main types of financial statements?

A

Income Statement,
Balance Sheet,
Statement of Cash Flows,
and Statement of Changes in Equity.

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5
Q

What does the Income Statement show?

A

The Income Statement shows a company’s revenues and expenses over a specific period, resulting in net income or loss.

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6
Q

What is a Balance Sheet?

A

A Balance Sheet presents a company’s financial position at a specific point in time, listing assets, liabilities, and equity.

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7
Q

What is the purpose of the Statement of Cash Flows?

A

The Statement of Cash Flows reports the cash inflows and outflows from operating, investing, and financing activities over a period.

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8
Q

What is equity in accounting?

A

Equity represents the owner’s residual interest in the assets of the business after deducting liabilities.

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9
Q

What is the role of accounting in business?

A

Accounting provides essential financial information for decision-making, planning, and control within an organization.

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10
Q

What are Generally Accepted Accounting Principles (GAAP)?

A

GAAP is a framework of accounting standards, principles, and procedures used in financial reporting.

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