financial statement Flashcards
The key product or the end product of the accounting process
FINANCIAL STATEMENTS
Types of Financial Statements
Statement of Financial Position
Statement of Comprehensive Income
Statement of Owner`s Equity
Statement of Cash Flows
shows the financial condition/ position of a business as of a given period.
Statement of Financial Position
It consists of assets, liabilities, and capital or owner’s equity.
Statement of financial position
shows the result of operations for a given period.
Statement of comprehensive income
It consists of the revenue, cost, and expenses.
Statement of comprehensive income
shows the changes in the capital or owner’s equity as a result of additional investment or withdrawals by the owner, plus or minus the net income or net loss for the year.
Statement of Changes in Owner`s Equity
summarizes the cash receipts and cash disbursement for the accounting period.
Statement of cash flow
Fundamental Accounting Equation
Assets=Liabilities + Owner’s Equity
are economic resources owned by the business expected for future gain. They are property and rights of value owned by the business.
Assets
include debts, obligations to pay, and claims of the creditors on the assets of the business
Liabilities
includes the interest of the owners on the business, claims of the owners on the assets of the business, and the investment of the owner plus or minus the results of operations.
Owner’s equity or capital
Classification of Assets
Current Assets
Non current Assets
are assets that can be realized (collected, sold, used up) one year after year-end date.
Current assets
are assets that cannot be realized(collected, sold, used up) one year after year-end date.
Non current assets
are assets without a physical substance
Intangible assets
Classification of Liabilities
Current liabilities
Non current liabilities
liabilities that fall due (paid, recognized as revenue) within one year after year-end date.
Current liabilities
liabilities that do not fall due (paid, recognized as revenue) within one year after year-end date.
Non current liabilities
earned or generated by the business in performing services for a client. Service Income
Revenue
include all payments made to employees or workers for rendering services to a company.
Salary and wage expense
is an expense related to the use of electricity, water and telecommunication facilities.
Utilities expense
used by a business in the conduct of the daily operations.
Supplies expense covers office supplies
is the annual portion of the cost of tangible assets such as buildings, machineries, and equipment
depreciation Expense
paid on insurance coverage such as premiums paid for health and life insurance, motor vehicles, or other properties.
Insurance Expense
is the amount of money charged to the borrower for the use of borrowed funds.
Interest expense
Formats of the Income Statement
Single step
Multi-step
called ____because all revenues are listed down in one section while all expenses are listed in another.
single-step
Total revenue minus total expense= Net Income
Single step
called____ because there are several steps needed in order to arrive at the company`s net income.
multi-step
Different income in income statement
Laundy income
Medical fees
Dental fees
Legal fees
Consultancy fee
Audit fees
Salaries and wages expense
Utilities expense
Supplies expense
Depreciation expense
Insurance expense
Interest expense
Laundry service by a laundry shop
Laundry income
Medical services by a doctor
Medical fees
Dental services by a dentist
Dental fees
Legal services by a lawyer
Legal fees
Advisory services by a consultant
Consultancy fees
Accounting or auditing services by a certified public accountant
Audit fees
these are rules and procedures that serve as guide in the practice of accounting.
-these are standards, assumptions, and concepts with general acceptability.
Generally Accepted Accounting Principles (GAAP)
comprises the methods used by a business to keep records of its financial activities and to summarize these accounts in periodic according reports.
Accounting system
Fundamental Concepts
Entity concept
Periodicty
Going concern
the business enterprise as separate and distinct from its owners and from other business enterprises.
Entity concept
–is the concept behind providing financial accounting information about the economic activities of an enterprise for specified time periods.
Periodicity
a twelve-month period that starts on January 1 and ends on December 31.
Calendar year
a twelve-month period that starts on any month of the year other than January and ends twelve months after the starting period.
Fiscal year
is a concept which assumes that the business enterprise will continue to operate indefinitely.
Going concern
Basic Accounting Principles
Objectivity principle
Historical cost
Accrual principle
Adequate disclosure
Materiality
Consistency
states that all business transactions that will be entered in the accounting reports must be duly supported by verifiable evidence.
Objectivity principle
means that all properties and services acquired by the business must be recorded at their original acquisition cost.
Historical cost
states that income should be recognized at the time it is earned such as when goods are delivered or when services have been rendered.
Accual principle
states that all material facts that will significantly affect the financial statements must be indicated.
Adequate disclosure
this refers to the relative importance of an item or event.
Materiality
means that approaches used in reporting must be uniformly employed from period to period to allow comparison of results between time periods.
Consistency
an account that is closed at the end of every accounting period, amd starts a new period with a zero balance
Temporary account
account with balances that carry over to the next business period.
Permanent account
Types of Business Organizations
Sole/Single Proprietorship
Partnership
Corporation
Cooperatives
is a business owned and managed by only one person.
Sole/Single Proprietorship
is a business organization owned managed by two or more people who agree to contribute money, property, or industry to a common fund of the purpose of earning a profit.
Partnership
is a form of business organizations managed by an elected board of directors.
Corporation
is an association of small producers and consumers who come together voluntarily to form a business which they own, manage, and patronize.
Cooperative
Types of Business Activities
Service
Trading/merchandising
Manufacturing
is a type of business operation engaged in the rendering of services.
Service
is a type of business engaged in the buying and selling of goods.
Trading/ merchandising
Why is it important to separate current assets to non current assets?
It is important to separate current assets to non current for managing your company’s balance sheet and also helps you understand a businesses profitability and strategic success
5 major accounts
Assets
Liabilities
Owner’s equity
Revenue
Expenses
Why is it important to separate current liabilities from non current liabilities?
It is important separate current from noncurrent liabilities for the portion long term debt listed separately to provide a more accurate view of the company’s current liquidity and the company’s ability to pay current liabilities as they become due.
Asset to cash
Liquidity
Why is it important to create a statement of financial position?
It helps reveal the financial position of a company in a particular date
Used in a general ledger to reduce the value of a related account when the two are netted(net entry) together
Contra purchases
