Chapter 1 Flashcards
What does “IFRS” stand for?
“International Financial Reporting Standards”.
What does “GAAP” stand for?
“Generally Accepted Accounting Principles”.
What financial statements are the core of financial accounting?
Comprehensive income, financial position/balance sheet, cash flows, and changes in equity.
What do the terms “net income” and “net loss” mean?
The amount of money that’s left after subtracting expenses from total revenue.
What does the term “limited-liability partnership” mean?
A business structure/combination of a corporation and a partnership that offers the partners protection, while maintaining the flexibility of a partnership.
What does the term “materiality” mean?
The significance of financial information and how it affects the decisions of investors and stakeholders. Information is considered material if misstating it (the information) directly affects an investor’s or stakeholder’s decision.
What does the term “completeness” mean?
Financial reports should include all the necessary information for an investor or a stakeholder to be able to make an informed decision.
What does “neutrality” mean?
All information must be depicted without any bias.
What does the accrual accounting method entail?
An accounting method where revenue and expenses are recorded when they’re earned, regardless of when cash is received or paid.
What elements are the core of financial statements?
Assets, liabilities, equity, income, and expenses.
What is provided in a company’s financial position/balance sheet?
Assets, liabilities, and equity.
What is provided in a company’s financial performance/income statement?
Income and expenses.
What does “the basic accounting equation” show?
The relationship between a company’s assets, liabilities, and equity. Assets are on the left and liabilities and equity is on the right. The two sides must always be equal.
What do total debits cover?
Assets.
What do total credits cover?
Liabilities and equity.
How do you calculate assets?
Assets = Liabilities + Equity
How do you calculate equity?
Equity = Assets - Liabilities
What’s the difference between current assets and long-term assets?
Current assets are expected to be converted to cash within the following 12 months, while long-term assets are expected to benefit the company beyond the following fiscal year.
What three activities do companies engage in?
- operating
- investing
- financing
What three factors influence accounting decisions?
- economic
- legal
- ethical
Whom does financial accounting concern?
Investors, creditors, government agencies, and the public.
What does managerial accounting concern?
Budgets, forecasts, and projections.
Explain what a proprietorship is.
One owner, small companies.
Explain what a partnership is.
Two or more owners, small and medium-sized companies.
Explain what a corporation is.
Owned by shareholders.
What are assets?
Resources that are expected to produce financial gains. Examples include cash, inventory, property, and equipment.
What are liabilities?
Debts that a company owes to outsiders. Examples include income taxes and long-term debts.
What is equity?
The shareholders’ interest in the company’s assets. Examples include paid-in capital and retained earnings.
What does “paid-in capital” mean?
The amount of money that shareholders have invested in a company.
What does “retained earnings” mean?
The amount of money that’s “stored” for use in a company.
True or false: if a company generally relies on its owner’s/owners’ equity, it has a strong financial position.
True
What does “share capital” mean?
The amount of money invested by a company’s owner/owners through shared ownership.
What do retained earnings cover?
Revenue, expenses, and dividends.
True or false: an income statement only reports revenue and expenses.
True
True or false: a statement of financial position and a balance sheet is not the same thing.
False
What are assets, liabilities, and equity reported in?
The statement of financial position/balance sheet.
What’s the difference between current liabilities and long-term liabilities?
Current liabilities have to be paid within one year, while long-term liabilities can be paid after more than one year.
Which of the following is not an asset:
A. cash
B. accounts payable
C. accounts receivable
D. supplies
B. (accounts payable)
Which financial statement reports the revenue and expenses during a specific period of time:
A. an income statement
B. a statement of changes in equity
C. a balance sheet
D. a statement of cash flows
A. (an income statement)
