Financial Statements Flashcards
accounting system of a company
set of procedures and controls used for identification of relevant transactions or events within the company
What is the purpose of financial statements?
provide critical company information to internal and external users
What is a financial statement?
Written reports that quantitatively describe the financial well-being of a company
What are the basic financial statements?
- Balance sheet
- Income statement
- Statement of owner’s equity
- Statement of cash flows
What are the principles of accounting?
- Going concern
- Objectivity
- Conservatism
- Consistency
- Matching
- Materiality
Going concern
Any given company plans to remain in existence for the foreseeable future
Objectivity
Accounting entries will be recorded on the basis of objective evidence
Conservatism
Accounting estimates, evaluations, and opinions should neither overstate nor understate the business activities of the company
Consistency
Similar measurement concepts and procedures for related items within financial statements are applied for entire accounting period
Matching
Requires that all expenses directly associated with the production of revenues be reported within the same period on the income statement (depreciation for example)
Materiality
Acknowledges the significance of various decisions and their ultimate effects on the financial statements given the magnitude of a company’s operations
Accounting Equation
- also called balance equation
• Assets = Liabilities + Owner’s Equity
• Assets - Liabilities = Owner’s Equity
What are the 5 basic types of accounts?
- Assets
- Liabilities
- Owner’s Equity
- Revenues
- Expenses
Assets
things a business owns that can be used to generate income
Liabilities
money owed to others or claims that various groups have against the company’s value
Owner’s Equity
Owner’s own fund or worth in the company
Revenues
Increases in assets and decreases in liabilities resulting from an entity’s profit-oriented activities
Expenses
Decreases in assets and increases in liabilities resulting from an entity’s profit-oriented activities
What is a balance sheet?
Itemized statement that lists total assets and total liabilities of a company with a specific date
What questions does the balance sheet answer for a company?
tells you how much cash you have as of today
What are the components of a balance sheet?
- Cash
- Accounts Receivables (A/R)
- Inventory
- Prepaid accounts
- Property, plant, equipment
- Intangible assets
- Accounts Payable
- Mortgage notes
Balance sheet: Cash
- Money
- Currency
- “Benjamin’s”
Balance sheet: Accounts Receivables (A/R)
The rights to receive money in the future.
Balance sheet: Inventory
refers to items held for resale
Balance sheet: Prepaid accounts
- accounts you pay at the beginning of the year, but haven’t used yet
- ex. prepaid rent
Balance sheet: Property, plant, equipment
Fixed assets such as your pharmacy building (assuming you own it)
Balance sheet: Intangible assets
an asset that is not physical in nature (i.e. goodwill, patents, trademarks)
Balance sheet: Accounts Payable
an entity’s obligation to pay a short term debt (payment for inventory, utilities, etc.)
Balance sheet: Mortgage notes
balance of your mortgage loan if any is owed on property purchase
depreciation
Property has a limited life span and it should be depreciated according to pre-established
guidelines
What is an income statement?
Records the company’s revenues and expenses for a specific period of time
income statement equation
Revenues – Expenses = Net Income
Dated “for the period ended” of a specific date
What are the components of an income statement?
- Sales (or Revenues)
- Cost of Goods Sold (COGS)
- Operating expenses
Income statement: Sales (or Revenues)
- Prescription sales
- OTC
- Compounding
- MTM
- Vaccinations
Income statement: Cost of Goods Sold (COGS)
merchandise (inventory) for resale
Income statement: Operating expenses
- Payroll
- Advertising
- Rent
- Depreciation
- Insurance
- Utilities
What is a statement of owner’s equity?
- Reports how a company’s retained earnings have changed over some time period
- specifically dated
What is a statement of cash flows?
- Reports all major cash receipts (inflows) and cash payments (outflows) during a period
- May be used as an analytical tool to assess short-term viability of a company
- Reveals how a business generated and used cash during an accounting period
