Financial Accounting Notes

Question 1

Asset

Answer 1

Anything of value that a company owns or controls. Anything that a company owns or controls created from a a past transaction that gives us a future economic benefit.

Examples of assets on the BALANCE sheet

Cash, Accounts Recievable (when someone owes you money), Inventory, “Property, Plant & Equipment”, Investments,

Question 2

Liabilities

Answer 2

Anything that has to be paid in the future. OWE

Any future economic obligation

Examples of liabilities on the BALANCE sheet

Accounts payable (typically owed in 30 days or less), Notes Payable (ex: bank loans, student loans, mortgages)

Question 3

Shareholder’s Equity

Answer 3

What’s left over if I sold off all the assets and paid off all the liabilities, that is the shareholder’s equity.

Question 4

Accouting Equation AKA Balance Sheet Equation

Answer 4

Assets = Liabilities + Shareholder’s Equity
ALTERNATIVELY
SE = A - L

What’s the owner’s piece of the pie?

Question 5

Revenue

Answer 5

EARNINGS

Question 6

Expenses

Answer 6

Costs

Question 7

Dividends

Answer 7

Shareholders pulling profits from the company, taking it from the company’s retained earnings.

Question 8

Types of Financial Statements

Answer 8

• Income Statement
• Statement of Changes in Equity
• Balance Sheet
• Cash Flow Statement

Question 9

Financial Statements

Income Statement

Answer 9

Summarizes/lists out company’s revenues and expenses

Revenues - expenses = net income (profit)

Question 10

Financial Statements

Statement of Changes in Equity

Answer 10

**2 Most Important Accounts
* **Common shares
* Retained Earnings

What did they begin with, what did they end with, how did they change?

Question 11

Balance Sheet

Answer 11

Lists all of company’s assets, company’s liabilities, and the equity accounts.

A= L+SE or SE= A-L

Question 12

Cash Flow Statement

Answer 12

What amount of cash did I begin with, what changes happened, and what amount did I end with?