Chapter 1, Modules 1-3 Flashcards
What is Financial Accounting?
The process of capturing, analyzing, and reporting transaction information to financial statement users, including Investors, Creditors, and Management.
What is an annual report?
A financial accounting document that reports the results of a company’s activities during a year.
What is the relationship of financial accounting to economic decision-making?
Provides insight into key data points, such as profitability and a company’s ability to service its debts, to help investors decide whether to buy more shares or sell them, and helps creditors decide whether to lend credit.
Who are the three main external users of financial accounting information?
Shareholders (investors, board), creditors, and regulators
What questions does financial accounting answer for shareholders?
Has the company generated sufficient return on my investment? Generate enough income with enough margin to pay dividends?
What are the three forms of business organization?
Corporations, proprietorships, and partnerships are the three forms of business organization.
What is a corporation?
A business with one or more shareholders (individuals or other corporations that own shares). The corporation is a separate entity from the shareholders.
What is a proprietorship?
An owner-operated business; the owner and the company are effectively one and the same, so owner is liable for the business’s debts.
What is a partnership?
A form of business organization owned by two or more individuals. As with proprietorships, the owners are not separate from the partnership entity and are liable to pay the partnership debts.
What are the three types of business activities?
Financing activities, investing activities, and operating activities.
What are financing activities?
A business activity involving obtaining money from lenders and investors.
What are investing activities?
Business activities that use a company’s money, including money received from investing activities, to purchase property, equipment, technology, staffing, etc to help the company generate revenue.
What are operating activities?
A type of Business activity. The day-to-day operations of a company, including buying and selling products or providing services, to generate revenues. Costs for generating revenues are part of the operating activities (eg, cost of sales, staffing).
What are the four basic financial statements?
- statement of income
- statement of changes in equity
- statement of financial position
- statement of cash flows
What is the statement of income?
Financial statement that illustrates operating performance / profitability over a given time frame.
= revenues - expenses
For a given period of time
