Financial Accounting Flashcards
What is financial accounting?
A specialized branch of accounting that keeps track of a company’s financial transactions
Financial accounting uses standardized guidelines to record, summarize, and present financial transactions in reports like income statements and balance sheets.
Who are the primary recipients of financial statements?
Owners/stockholders and certain lenders
Publicly traded companies’ financial statements may also reach competitors, customers, employees, labor organizations, and investment analysts.
What is the primary purpose of financial accounting?
To provide enough information for others to assess the value of a company for themselves
What are accounting standards?
Common rules known as generally accepted accounting principles (GAAP)
GAAP ensures financial statements are credible, understandable, and comparable.
What organization develops accounting standards in the U.S.?
Financial Accounting Standards Board (FASB)
What is double-entry bookkeeping?
A system where every transaction affects at least two accounts
What must be true for a double-entry transaction?
The debit amount must equal the credit amount
What is the accrual basis of accounting?
Revenues are reported when earned, and expenses are reported when incurred
What are the main components of the income statement?
Revenues, expenses, gains, and losses
What is the purpose of the statement of comprehensive income?
To report net income and other comprehensive income
What does the balance sheet report?
A company’s assets, liabilities, and stockholders’ equity at a specified date
What are the three parts of the statement of cash flows?
Operating activities, investing activities, and financing activities
What does the statement of stockholders’ equity list?
Changes in stockholders’ equity during the same period as the income statement
What does financial reporting include beyond financial statements?
Annual reports to stockholders, SEC reports, proxy statements, and other financial information
What is the difference between financial accounting and managerial accounting?
Financial accounting provides information for external stakeholders, while managerial accounting provides information for internal management
