Chapter 4 Flashcards
What is the purpose of financial statements?
Financial statements provide a summary of a company’s financial performance and position, aiding stakeholders in decision-making.
What is included in the Income Statement?
The Income Statement includes revenues, expenses, and the resulting net income or loss for a specific period.
What are the key components of a Balance Sheet?
The Balance Sheet includes assets, liabilities, and equity, providing a snapshot of a company’s financial position at a specific point in time.
What does the Statement of Cash Flows report?
The Statement of Cash Flows reports cash inflows and outflows from operating, investing, and financing activities over a specific period.
How is the Statement of Changes in Equity structured?
The Statement of Changes in Equity shows the changes in equity accounts, including investments by owners, net income, and withdrawals or distributions.
What is the purpose of the notes to financial statements?
The notes provide additional context, details, and explanations related to the financial statements, enhancing transparency and understanding.
How do financial statements relate to each other?
Financial statements are interconnected; for example, net income from the Income Statement affects retained earnings on the Balance Sheet.
What is the significance of the reporting period?
The reporting period defines the time frame for which financial performance and position are reported, allowing for comparison over time.
What is accrual accounting?
Accrual accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.
Why is the closing of accounts important in accounting?
Closing accounts resets temporary accounts for the next accounting period and transfers net income or loss to the equity accounts.
