Financial Accounting, the Financial Statements, and the Balance Sheet Flashcards
What is accrual accounting?
Accrual accounting is the style of accounting in which transactions are recorded when they occur. It doesn’t matter when the cash effect takes place.
What are the three sets of books in accounting?
Financial books, management books, and tax books
What does GAAP stand for?
Generally Accepted Accounting Principles
What does IFRS stand for?
International Financial Reporting Standards
What are the four financial statements required for regular reporting?
The balance sheet, income statement, statement of cash flows, and statement of stockholders’ equity
What does the balance sheet do?
The balance sheet shows a company’s financial position at a specific point in time
What are the three parts of a balance sheet?
Assets, liabilities, and owner’s equity
What is the balance sheet equation?
Assets = liabilities + owner’s equity
What are assets?
Assets are resources that are expected to provide future economic benefit
What are liabilities?
Liabilities are amounts the company owes
What is owner’s equity?
Owner’s equity is the amount the owner’s give to the company (capital stock) and the amount of earnings that is internally generated (retained earnings)
When can an asset be recorded in the books?
An asset can be recorded in the books when it is:
1) Owned or controlled by the company as a result of a past exchange or transaction
2) Expected to provide future benefits that can be reliably measured
When can a liability be recorded in the books?
A liability can be recorded in the books when:
1) A future payment is probable
2) The amount of the obligation can be reasonably estimated
3) The event that caused the obligation has occurred
What is a current asset?
A current asset can be used in the operations of a business or turned into cash within a year
What is a current liability?
A current liability must be paid within a year
