Chapter 1 & 2 Flashcards
Debit is on the ______, while credit is on the ______.
Left; Right
What is the NORMAL balance of an asset?
+ Debit
What is the NORMAL balance of a liability?
+ Credit
What is the NORMAL balance of common stock (equity)?
+ Credit
What is the NORMAL balance of dividends (equity)?
+ Debit
What is the NORMAL balance of revenues (equity)?
+ Credit
What is the NORMAL balance of expenses (equity)?
+ Debit
THINK: A L C D R E equals…
D C C D C D
What 3 things are considered liabilities (+ credit)?
Payables, accrued liabilities, and unearned revenue
What 7 things are considered assets (+ debit)?
Cash, equipment, supplies, land, buildings, receivables, and prepaid accounts
What 4 things are considered equity?
Common stock, dividends, revenues, and expenses
What is the basic accounting equation? What is the more in-depth equation?
Assets = Liabilities + Equity
Assets = Liabilities + [Com. Stock - Dividends + Revenues - Expenses]
What are the 7 external users?
Taxing authorities, shareholders, lendors/creditors, external auditors, regulators, labor unions, non managerial employees
What are the 3 internal users?
All MANAGERS, CEOs, and company officers
What are the 3 forms of business?
Sole Proprietorship, Partnership, and Corporation
What are owners of a sole proprietorship called?
Members
What are owners of a partnership called?
Partners
What are owners of a corporation called?
Shareholders
S.P. and Partnership have the same advantages and disadvantages. List them both:
Adv: simple; tax advantages
Dis: Unlimited liability; difficult to obtain financing
What is the only difference between a partnership and sole proprietorship?
S.P. has one owner, while partnership has two
What are the advantages (4) and disadvantages (2) of a corporation?
Adv: Separate legal entity; easier to transfer ownership; no personal liability; easier to raise funds
Dis: Higher income taxes; government regulations
What is a Limited Liability Company (LLC)?
An election made by S.P. or partnership to create a separate entity and limit personal liability
What are the 3 factors of a Fraud Triangle?
Opportunity, Pressure, Rationalization (OPR)
What are the standards which all US publicly traded companies must follow when preparing their financial statements?
Generally Accepted Accounting Principles (GAAP)
Who issues/frequently advises GAAP, and is given authority by SEC?
Financial Accounting Standards Board (FASB)
Who is the US government agency that oversees GAAP by companies that sell stock and debt to public?
Securities and Exchange Commission (SEC) THINK: Exchanging stock/debt
Who issues the IFRS?
International Accounting Standards Board (IASB)
What are the accounting rules for financial statements of public companies around the world?
International Financial Reporting Standards (IFRS)
What are the four principles of accounting?
Measurement (cost), Full Disclosure, Revenue Recognition, and Expense (Matching) Recognition
What is the Measurement principle?
Cost measured in cash basis
What is the full disclosure principle?
Reports details behind statements that impact users’ decisions
What is the revenue recognition principle?
Recognizes revenue when goods are provided to customers
What is the expense recognition principle?
Expenses are recognized in same period as revenue they help generate
What is the income statement equation?
Net income: Revenue - Expenses NOTE: Can be a gain or loss
What is the balance sheet and it’s equation?
Dated at a point in time; Assets = Liabilities + Equity
What is cash flow?
Inflow and outflow from business activities
What are the three types of cash flow?
Operating, investing, and financing
What are retained earnings?
Changes in retained earnings from net income and any dividends over a period of time
What is the retained earnings equation?
Beg. R.E. + Net Income - Dividends = End R.E.
What are liabilites?
Claims by creditors against assets
What is equity?
Owner’s claim on company’s assets
What are assets?
Resources owned/controlled by a company, expecting future benefit
What are dividends?
Payments to stockholders
What is debt ratio a measure of?
Solvency
What is liquidity and efficiency?
The ability to meet short-term obligation and to efficiently generate revenue (THINK: efficient is quick and SHORT)
What is solvency?
Ability to meet long-term obligations and generate future revenue
What is profitability?
Ability to provide financial rewards to investors and attract and retain financing
What are market prospects?
Ability to generate positive market expectations
