F&MA Flashcards
What are the two kinds of accounting, and who are they for?
Financial accounting is for external users and managerial accounting is for internal users. Financial accounting produces financial statements.
Define accounting.
An information system that identifies, measures, records, and communicates relevant information that objectively and correctly represents an organization’s economic activities.
What is the assumption that financial statement users can make that a business is going to continue its operations at least 12 months into the future?
The going concern assumption.
What principle means that revenue is recorded at the time it is earned?
The revenue recognition principle.
Define historical cost.
Actual cash amount received or paid. Most commonly adopted method to record accounting transactions.
Define current cost.
The amount of cash it would cost to acquire an asset/settle a liability today. Investments in actively traded corporate stocks are reported this way.
Define realizable value.
The amount of cash that would be obtained by selling the asset or paying off the liability in the normal course of business. Inventory is recorded at the lower of historical cost and realizable value.
Define present value.
The present value of future expected cash flows, after discounting to reflect the time value of money in terms of expected interest/inflation. Long-term debt instruments (corporate bonds) sold are reported at the present value of future cash payments.
What is the link between financial statements?
- Balance Sheet (beg. of period)
- Income Statement
- Statement of Changes in Equity
- Balance Sheet (end of period)
And Statement of Cash Flows throughout.
What is equity?
Total assets minus total liabilities.
What is the Accounting Equation?
Assets = Liabilities + Equity
What is the accounting cycle?
The series of steps required to prep a set of financial statements for users.
Define account.
A detailed record of increases and decreases in a specific asset, liability, or equity item.
What is a ledger?
A record containing all individual accounts used by a business.
Which side is debit and which is credit?
Left = debit.
