Chapter 2: Financial Reports Flashcards
What is the most important financial report that an accounting system produces?
The income statement or a profit and loss (P&L) statement.
What does an Income Statement summarizes?
Revenues and expenses of a business for a particular time (usually a year).
What does Revenues represent?
The total amount of money that the business receives form its normal operations.
What does Expenses represent?
The amount that the business spends providing those goods and services,
What makes a business profitable?
When the revenues are grater than the expenses.
What is the second most important financial report that an accounting system produces?
A balance sheet.
What does a Balance Sheet itemizes?
A business’s assets, liabilities and owner’s equity and information regarding the status of the basic accounting elements at a particular time.
What are the Assets of a business?
Money and items of value owned by the business.
What are the Liabilities of a business?
The amounts owned to creditors.
What are the Owner’s equity of a business?
The net worth of the business owner calculated as: Owner’s equity = Total assets – Total liabilities.
