Chapter 2 Flashcards
What is the accounting cycle?
Start of the accounting period:
1. Analyze each transaction
2. Record entries in the journal
3. Post effects to the ledger
End of the accounting period:
4. Prepare trial balance
5. Adjust revenues and expenses
6. Prepare and disseminate financial statements
7. Close income statement accounts
How are assets listed?
Assets are listed in terms of its liquidity
What are the elements of a corporation’s balance sheet?
Assets, liabilities and stockholders’ equity
What is an asset?
Economic resources owned or controlled by a company; they have measurable value and are expected to benefit the company by producing cash inflows or reducing cash outflows in the future
What is a liability?
Obligations resulting from a past transaction; they are expected to be settled in the future by transferring assets or providing services
What is the stockholders’ equity?
Represents the residual interest in the
assets of the entity after subtracting liabilities. It is a combination of the financing provided by the owners and by business operations
What is not reported on the balance sheet?
Intangible assets such as trademarks and patents
What are the 2 types of transcations?
External and internal events
What are external events?
Exchange of assets, goods or services by one party assets, services or promises to pay
What are internal events?
Events that are not exchanges between the business and other parties but they do have a direct and measurable effect on the entity
What must the accounting equation always remain in?
In balance after each transaction
What is a journal entry?
An accounting method for expressing the effects of a transaction on accounts
What does a debit always equal?
Credits
What are the 3 assumptions for accounting?
Separate entity assumption, going concern assumption, monetary union assumption
What are current assets?
Used or turned into cash within the year
What are non-current assets?
Can be turned into cash after a year - long-term investments, property and equipment, and intangible assets
What are current liabilities?
Those that will be paid within the next 12 months with current assets
How can you calculate common stock?
Par value x number of shares
How can you calculate additional paid-in capital?
Number of shares × excess of market value over par value per share
How do you calculate the current ratio?
Current assets/current liabilities
What do investing activities include?
Purchasing and selling long-term assets and making loans and receiving principal repayments from others
What do financial activities include?
Borrowing from and repaying to banks the principal on loans, issuing and repurchasing stock, and paying dividends
