Class 1: Financial Accounting

Question 1

What is the basic accounting equation?

Answer 1

Assets = Liabilities + Shareholders equity

Question 2

What are Assets? Give some examples

Answer 2

Resources controlled by the company that has measurable value and are expected to provide benefits in the future. E.g Cash - Accounts receivable - Inventory - Equipment.

Question 3

What is Depreciation expense?

Answer 3

the amount that a company’s assets are depreciated for a single period such as a quarter or the year. (Purchase price - salvage value) / useful life

Question 4

What is Netbook value

Answer 4

calculated by subtracting accumulated depreciation from the original purchase price (also called its historical cost)

Question 5

What is market value

Answer 5

Represents the value of a company according to the stock market. What people are willing to pay

Question 6

Define liabilities, provide examples.

Answer 6

Amount owed to creditors. E.x Payable, bank loan, unearned revenue (owe a service)

Question 7

What is Shareholders Equity? Contributed capital and retained earnings?

Answer 7

Owners claim on the business. contributed capital: contributed directly to the company in exchange of shares. Retained earnings: company has earned through profitable business.

Question 8

Intangible assets

Answer 8

Value that you cannot put a dollar figure, does not appear on a balance sheet, but provides future benefits. e.g a company credibility, location, goodwill (client list)

Question 9

What is revenue

Answer 9

the amount earned by selling goods or services to customers

Question 10

How do you calculate net income

Answer 10

Revenue - expenses. By doing this a company increases its shareholders equity

Question 11

What are dividends

Answer 11

distribution of a companys earnings to shareholders as a return on their investment. Not an expense

Question 12

Retained Earnings

Answer 12

Increase with Net income (profit generated) but deceases with dividends

Question 13

what do financial statements consist of

Answer 13

Four accounting reports that go in order of: Income statement, statement of retained earnings, balance sheet, statement of cashflows

Question 14

What is a statement of retained earnings

Answer 14

reports how the Net income & dividends affects the financial position of the company during a period of time

Question 15

What is a balance sheet and what does it tell us

Answer 15

the amount of assets, liabilities and shareholders equity at a point in time.

Question 16

What is the statement of cash flows and what does it tell us?

Answer 16

Activities that caused increases and decreases in cash during the current accounting period. E.x cash collected from customers, cash paid for equipment

Question 17

What are the 3 types of activities of statement cashflows

Answer 17

1. Operating activities: directly related to running a business
2. Investing activities: buying and selling productive resources with long lives, purchasing investments
3. Financing activities: borrowing from banks, receiving contributions from shareholders or paying dividends.