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MGMT E-1000 > Chapter 1 - Financial Statements > Flashcards

Chapter 1 - Financial Statements Flashcards

1
Q

Business organization types

A
  • Proprietorship
  • Partnership
  • LLC
  • Corporation
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2
Q

Proprietorship

A

one owner, personally liable

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3
Q

Partnership

A

two or more owners; general partners personally liable, limited are not

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4
Q

LLC

A

members, not personally liable

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5
Q

Corporation

A

stockholders, not personally liable

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6
Q

GAAP

A

Generally Accepted Accounting Principles

formulated by FASB

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7
Q

IFRS

A

International Financial Reporting Standards

set by IASB

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8
Q

FASB

A

Financial Accounting Standards Board

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9
Q

IASB

A

International Accounting Standards Board

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10
Q

Fundamental Qualitative Characteristics

A
  • relevance

* faithful representation

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11
Q

relevance

A

capable of making a difference to a decision maker, having predictive or confirming value

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12
Q

material

A

important enough to the informed user so that, if it were omitted or erroneous, it would make a difference in the user’s decision

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13
Q

faithful representation

A

reliable, and focused on the economic substance of a transaction, event, or circumstance

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14
Q

Enhancing Qualitative Characteristics

A
  • comparability
  • verifiability
  • timeliness
  • understandability
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15
Q

entity assumption

A

assumes that an organization stands apart as a separate economic unity

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16
Q

continuity assumption (going-concern)

A

assumes that an entity will continue to operate long enough to use existing assets

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17
Q

historical cost principle

A

assets should be recorded at their actual cost, measured on the date of purchase

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18
Q

stable-monetary-unit assumption

A

assumes that the purchasing power of a monetary unit is stable over time, ignores inflation

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19
Q

assets

A

economic resources that are expected to produce future benefit

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20
Q

liabilities

A

“outsider claims”

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21
Q

owner’s equity (or capital, or stockholders’ equity)

A

“insider claims”

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22
Q

fundamental accounting equation

A

Assets = Liabilities + Owner’s Equity

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23
Q

stockholders’ equity

A

Stockholders’ Equity = Paid-in Capital + Retained Earnings

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24
Q

paid-in capital

A

the amount stockholders have invested in the corporation; basic component is common stock

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25
Q

retained earnings

A

amount earned by income-producing activities kept for use by the business

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26
Q

revenues

A

inflows of resources that increase retained earnings by delivering goods or services to customers

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27
Q

expenses

A

resource outflows that decrease retained earnings due to operations

28
Q

dividends

A

distributions to stockholders of assets (usually cash) generated by net income, which decrease retained earnings

29
Q

dividends are not expenses

A

never affect net income

direct reductions of retained earnings

30
Q

profit

A

excess of revenue over expenses

31
Q

net income

A

when total revenues exceed total expenses

32
Q

net loss

A

when total expenses exceed total revenues

33
Q

net income equation

A

Net Income = Revenues – Expenses

34
Q

exhibit 1-5

A

memorize

35
Q

financial statements list

A
  1. Income Statement
  2. Statement of Retained Earnings
  3. Balance Sheet
  4. Statement of Cash Flows
36
Q

Income Statement

A

measures operating performance, reporting revenues and expenses for the period

37
Q

Income Statement structure

A

Revenues
(–) COGS = Gross profit
(–) Operating expenses = Income from operations
(–) Net other income and expense = Income before taxes
(–) Income tax expense = Net income
[Compared for two or more periods]

38
Q

Statement of Retained Earnings

A

shows what a company did with its net income

39
Q

Statement of Retained Earnings structure

A

Retained earnings (P-2)
(+) Net income (P-1)
(–) Cash dividends (P-1) = Retained earnings (P-1)
(–) Net income (P)
(–) Cash dividends (P) = Retained earnings (P)

40
Q

Balance Sheet

A

measures financial position using assets, liabilities, and stockholders’ equity at a moment in time

41
Q

Balance Sheet structure

A

…

42
Q

Statement of Cash Flows

A

measures cash receipts and payments, using operating activities, investing activities, and financing activities

43
Q

Statement of Cash Flows structure

A

…

44
Q

accounting

A

the information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers

45
Q

board of directors

A

group elected by stockholders to set policy for a corporation and to appoint its officers

46
Q

capital

A

another name for the owner’s equity of a business

47
Q

common stock

A

the most basic form of capital stock

48
Q

corporation

A

a business owned by stockholders; a legal entity, an “artificial person”

49
Q

current asset

A

an asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business’s normal operating cycle if longer than a year

50
Q

current liability

A

a debt due to be paid within one year or within the entity’s operating cycle if the cycle is longer than one year

51
Q

deficit

A

negative balance in retained earnings caused by net losses over a period of years

52
Q

dividends

A

distributions (usually cash) by a corporation to its stockholders

53
Q

entity

A

an organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit

54
Q

ethics

A

standards of right and wrong that transcend economic and legal boundaries

55
Q

expenses

A

decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues

56
Q

fair value

A

the amount that a business could sell an asset for, or the amount that a business could pay to settle a liability

57
Q

financial statements

A

business documents that report financial information about a business entity to decision makers

58
Q

financing activities

A

activities that obtain from investors and creditors the cash needed to launch and sustain the business

59
Q

investing activities

A

activities that increase or decrease the long-term assets available to the business

60
Q

long-term debt

A

a liability that falls due beyond one year from the date of the financial statements

61
Q

net earnings

A

another name for net income

62
Q

net profit

A

another name for net income

63
Q

operating activities

A

activities that create revenue or expense in the entity’s major line of business

64
Q

statement of financial position

A

another name for the balance sheet

65
Q

statement of operations

A

another name for the income statement

66
Q

stock

A

shares into which the owners’ equity of a corporation is divided

MGMT E-1000 (7 decks)

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