Financial management 1& 2 Flashcards
what is accounting?
an information system that identifies, records and communicates the economic events of an organization to interested users
what does the accountant do?
identifies financial transactions;
records, classifies and summarizes the transactions;
prepares financial reports
and analyzes and interprets them for users.
what is the accounting formula?
Assets = liability + Equity
what are assets?
what the business owns
what are liabilities?
what the business owes
what is equity?
the difference between assets and liabilities
what is a balance sheet?
financial summary of the health of the business on a given date (right now)
lists assets, liabilities and equity on specific date
whats an income statement?
(pprofit loss statement)
a financial report that includes the revenue, expenses, and net income over a period of time
shows whether made or lost money
what happens to the debits and credits for assets?
debits up, credits down
what happens to the debits and credits for liabilities and equity?
debits down, credits up
what are the Generally Accepted Accounting Principles (GAAP)?
a set of standards to be used when recording financial transactions
- distinct business entity
- going concern
- matching
- monetary unit
- materiality
- time period
- objectivitiy
- cost
- conservatism
- consistency
- full disclosure
GAAP
what is a distinct business entity?
a business’s financial transactions must be kept separate from those of the owners
GAAP
what is the going concern
the assumptions that the business will be ongoing indefinitely and therefore, assets are recorded at the price paid for them and the n at the replacement value
GAAP
what are monetary units
financial statements must be prepared in a specific currency (ex $CAD)
GAAP
what is the time period?
the time period of the financial statements must be reported
GAAP
explain cost
all business transactions must be recorded at their cash cost
GAAP
explain consistency
a business must consistently use one system to record transactions
GAAP
explain matching
expenses incurred should closely match the actual revenue those expenses generated
GAAP
explain materiality
if the value of an item is not significant, then other accounting principles may be ignored if its not practical to use them
GAAP
explain objectivity
there must be evidence to back up finaicial transactions reported
GAAP
explain conservatism
accountants must be conservative when reporting revenue and realistic when reporting expensies and other liabilities
GAAP
explain full disclosure
requires that footnotes on the finaicial statements disclose any past or future events that could affect the financial health of the business
what do records for control do?
collect data on the major phases of the operation
give some examples of records for control for purchasing and recieving
purchase orders
invoices
recieving records
requisitions
discrepancy reports
