Chapter 1- Accounting Fundamentals Flashcards
What does the ALOE acronym stand for?
The accounting equation
Assets = Liabilities + Owner’s Equity
What are the four financial statements?
Income Statement
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows
What does the incomes statement tell us?
How much money the company made
What does the statement of retained earnings tell us?
How much of the money that was made was reinvested in the compnay
What does the balance statement tell us?
It lists all assets, liabilities, and owner’s equity accounts and tells the balance of each account.
What does the statement of cash flows tell us?
The inflow and outflow of a company’s cash for a given time period
What are the steps of the accounting cycles?
Collection and Analysis Journalizing the Transactions Post to General Ledger Unadjusted Trail Balance Adjustments Adjusted Trial Balance Financial Statements Close Accounts Post-Closing Trial Balance
What are assets?
What a company owns
What are liablities
what a company owes
What is Owner’s Equity
How much of a personal investment an owner has placed in something that he owns
What is GAAP
Generally Accepted Accounting Principles
What does GAAP do?
The standard by which items on the balance sheet must be reported.
What is the net income equation?
Revenue - Expenses = Net Income
What are revenues
the amount of money that a company brings in
what are expenses
the amount of money that a company pays outs
what is net income
the amount of revenue that came in once expenses have been taken out.
What is the term used to define when the amount of expenses that were paid were more than the amount of revenue that came in
Net Loss
What are activities that occur during the normal day-to-day operations of a company?
Operating Activites
What are activities that involve the purchase and sale of long-term assets as well as making or giving loans
Investing Activities
What are activities that involve cash receipts or cash payments that are a result of changes in long-term liabilities?
Financing Activities
The major reasons that the statement of cash flows is important?
- explains why changes in cash balances occurred.
- helps users jude whether or not a company can pay the people that they owe money to.
- it helps users see whether or not a company needs to borrow money to meet its debt obligation
- It helps users see why there are any differences between a company’s net income and the actual cash receipts and cash payments that a company made during a specific accounting period.
- it helps uses see why a company may experience changes in their financial position from one accounting period to the next.
What is meant by an Arm’s Length Transaction?
those were the people involved in the transactions are not personally related.
What is the term used that represented the amount of cash that you have to give up to acquire a specific item?
Cost
What is a going-concern?
the belief that a company will keep on going and going into the future.
What is the monetary measurement concept?
All accounting actions deal with money
what is the revenue recognition principle?
lets you know that revenue is realized when it is earned, regardless of when they’re paid.
What is the separate entity principle?
It means that no matter what you do as a business owner, be sure that you keep your dealings and the dealings of your company completely separate, especially if you want a clear picture of where you stand financially
What is fiscal policy?
the use of government spending, taxation and transfer payments to influence aggregate demand and , therefore, real GDP.
How does government spending affect GDP?
When the government increases or decreases it spending, for examples, when it purchases a fleet of new care for employee or missiles for national defense.
How does taxation affect GDP?
taxes affect the average consumer’s income, and change in consumption lead to changes in real GDP.
How do transfer payments affect GDP?
These include social security, welfare or unemployment checks. These lead to consumer income and when consumers spend more of their income, this influences economic output.
What is expansionary fiscal policy?
when the government uses fiscal policy to stimulate aggregate demand during a recession.
What is contractionary Fiscal Policy?
When the government uses fiscal policy to reduce aggregate demand during an inflationary economy.
