CHAPTER 1 Flashcards
What is financial accounting?
Financial accounting is the process of recording, summarizing, and reporting financial transactions to provide useful information to external users.
Who are the primary users of financial information?
Primary users include investors, creditors, management, regulators, and other stakeholders.
What is the basic accounting equation?
Assets = Liabilities + Equity.
What are the four main types of financial statements?
Income Statement,
Balance Sheet,
Statement of Cash Flows,
and Statement of Changes in Equity.
What does the Income Statement show?
The Income Statement shows a company’s revenues and expenses over a specific period, resulting in net income or loss.
What is a Balance Sheet?
A Balance Sheet presents a company’s financial position at a specific point in time, listing assets, liabilities, and equity.
What is the purpose of the Statement of Cash Flows?
The Statement of Cash Flows reports the cash inflows and outflows from operating, investing, and financing activities over a period.
What is equity in accounting?
Equity represents the owner’s residual interest in the assets of the business after deducting liabilities.
What is the role of accounting in business?
Accounting provides essential financial information for decision-making, planning, and control within an organization.
What are Generally Accepted Accounting Principles (GAAP)?
GAAP is a framework of accounting standards, principles, and procedures used in financial reporting.