Chapter 11 Accounting Flashcards
Users of accounting information
Managers, Investors, Government regulatory agencies, employees, Tax authorities
Audit
an official inspection of an individual’s or organization’s accounts, typically by an independent body.
Accounting equation
Assets=Liabilities+owner’s equity
Assets
Economic resource expected to benefit
- cash
-accounts receivable (have rights to money ex.net 30)
-Inventory
-Equipment
Liabilities
Debt that firm owes to an outside party
- Accounts payable
-loan payable
mortgage payable
Owners Equity
Any original investments by owner, what’s left after subtracting a company’s liabilities from its assets
Owners Equity Equation
Assets-liabilities=Owners Equity
Balance sheet
shows company’s assets, liabilities and, owner’s equity at a point in time
Income statement
Shows revenues and expenses over a period of time
Profit=revenue-expenses
Statement of cash flows
shows a company’s cash receipts and cash payments over a period of time
3 sections
-operating
-investing
-financing
Positive cash vs profit
positive cash flow means that there is more money coming in than flowing out a point in time, profit is all revenue - expenses (net income).
Solvency ratios
For evaluating short-term and long-term risks
Current ratio
Debt to equity ratio
Current ratio
current assets/current liabilities
debt to equity ratio
total liabilities/ owner’s equity
Profitability ratios
for measuring potential earnings
- Return on equity
- Return on sales
- Earnings per share
