Chapter 2 Flashcards
what is the starting point of the accounting process
identifying
the entire life of a business enterprise can be divided into equal time periods known as ________?
accounting periods
bookkeeping periods
reporting periods
what is a calendar year
a reporting period that starts jan 01 and ends dec 31
what is a fiscal year
it is still a year long reporting period but doesnt necessarily start jan 01 and end dec 31
what is an interim period
a business period within an (1year) accounting period.
what is a natural business year
a period of twelve months for which a company prepares its accounts based on its typical levels of activity, starting and ending when activity have reached their the lowest point.
what is the objective of a financial statement
provide finan info about an entity’s assets, liabilities, equity, income, and expenses
what are the FOUR components of a financial statement
- statement of financial position
- statement of financial performance
- statement of changes in the owner’s equity
- statement of cash flows
what is a general-purpose financial statement
a set of financial reports that are intended to be used by a wide range of users, including investors, creditors, regulators, and management. The most common general purpose financial statements are: the balance sheet. income statement. cash flow statement.
what is a specific-purpose financial statement
A special-purpose financial statement is a financial report that is intended for presentation to specific users. they are sometimes referred to as internal reports
who are the users of financial info
- internal - management group
- external - financing group and public group
who are the management group
internal users who own and manage a business entity. those who are directly involved in managing he business. Internal financial reports are prepared for them but they are noth governe by GAAP.
who are the financial group and public group
external users who do not own a business and/or manages and control the business entity. those who are not directly involved.
interest groups that use financial statements
- management
- investors
- suppliers and trade creditors
- banks and other lenders
- government and its agencies
- employees and labor unions
- customers and clients
- genera public
what is the statement of financial position
The balance sheet - also called the Statement of Financial Position - serves as a snapshot, providing the most comprehensive picture of an organization’s financial situation. It reports on an organization’s assets (what is owned) and liabilities (what is owed). The net assets (also called equity, capital, retained earnings, or fund balance) represent the sum of all annual surpluses or deficits. The balance sheet also indicates an organization’s liquidity by communicating how much cash an
organization has at present and what assets will soon be available in the form of cash.
balance sheet
what does the heading display
- name of the business
- title of financial statement which is finan pos
- the date (usually end of the year)
what does the body display
- assets
- liabilities
- equity of the owner/s
what is the fundamental accounting equation
assets = liabilities + owner’s equity
what is a current asset and a noncurrent asset
is an account listed on a balance sheet that shows the value of the assets owned by a company that can be converted to cash through liquidation, use, or sales within one year. cash, investment, receivables, notes, inventories, prepaird expenses
Noncurrent assets are a company’s long-term investments for which the full value will not be realized within the accounting year
what are the current assets
- cash
- investment in stock
- investment in bonds
- accounts receivable
- notes receivable
- loans receivable
- inventories
- prepaid expenses
- accrued revenue receivable
what are the noncurrent assets
- land
- building
- equipment
- furniture and fixtures
- tools, patterns, molds, and dies
- franchise
what is a contra-asset
A contra asset account is a type of asset account where the account balance may either be a negative or zero balance. This type of asset account is referred to as “contra” because normal asset accounts might include a debit, or positive, balance, and contra asset accounts can include a credit, or negative, balance.
what is a liability
Liabilities are any debts your company has, whether it’s bank loans, mortgages, unpaid bills, IOUs, or any other sum of money that you owe someone else.
liability equation?
L = A - OE