Chapter 7 - Accounting Flashcards
What is the basic accounting equation
Assets = Liabilities + Owner’s Equity
What is the income statement equation?
Net Income = Revenue - Expenses
What is FINANCIAL accounting?
Intended for those on the OUTSIDE looking IN. Addresses the needs of EXTERNAL stakeholders; includes FINANCIAL STATEMENTS to provide BROAD information.
What is the IFRS?
International Financial Reporting Standards. Standards used in the PREPARATION of financial statements. Using this, accountants aim to ensure that financial statements are RELEVANT, RELIABLE, CONSISTENT, COMPARABLE
What are the basic financial statements?
Balance sheet, Income statement, cash flow
Who MUST public financial statements?
Corporations with PUBLICLY held stock
What is a balance sheet?
Summarizes a firm’s financial position at a SPECIFIC POINT IN TIME. Shows Assets, Liabilities, and Owner’s Equity
What is the income statement?
Summarizes a firm’s operations OVER A GIVEN PERIOD OF TIME in terms of PROFIT and LOSS. Shows Revenue, Expenses, Net Income
What is Accrual-Basis Accounting?
Records revenues AS THEY ARE EARNED. Regardless of if actual cash was received. Good for determining actual revenue and expenses during a given time (especially useful with things like delayed payments).
What is cash flow?
Actual cashing coming in and going out of the firm.
Why are stakeholders concerned with cash flow?
Because they need to know if there is enough money to pay for labour.
What would you see on a cash flow statement?
Operating, Investing, and Financing cash flows.
What is retained earnings statement?
reports how retained earnings have changed
What is shareholder’s equity statement?
Reports how net income and dividends affect retained earnings.
Who needs an auditor report?
Publicly traded corporations are required to have an accounting firm perform an external audit.
The Auditor will issue an UNQUALIFIED, QUALIFIED, or ADVERSE opinion.
They MUST BE INDEPENDENT.
