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Principals Of Accounting > Intro To Financial Statements > Flashcards

Intro To Financial Statements Flashcards

1
Q

Sole Proprietorship

A
  • A business owned by one person
  • Simple to set up
  • gives owner control of business
  • more favorable tax treatment
  • personally liable for debts and obligations
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2
Q

Partnership

A
  • owned by 2 or more people
  • personally liable to debts and obligations
  • often formed because multiple partners bring unique skills or resources
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3
Q

Corporation

A
  • investors receive stock shares to indicate ownership claim and easier to transfer ownership
  • business organized as a separate legal entity
  • easier to raise funds
  • higher taxes
  • limited liability
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4
Q

Types of users: INTERNAL

A

Management of the company

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5
Q

Types of users: EXTERNAL

A

Public; don’t work for company
- investor
- creditors (bank)
- prospective employee
- prospective customer

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6
Q

Financial Reports

A

Financial statements include information about a company’s PAST performance

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7
Q

Types of Financial Statements

A
  1. Income statement
  2. Statement of Retained Earnings / Stockholder’s Equity Statement
  3. Balance Sheet
  4. Statement of Cash Flows
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8
Q

Income Statement

A
  • statement of results of operations
  • reports revenues, expenses, and net income (profit) or net loss of a specific period of time (i.e. only 2023)
  • excludes revenues/expenses from prior periods
  • lists company’s revenues followed by its expenses
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9
Q

Net Income FORMULA

A

REVENUES - EXPENSES = NET INCOME (LOSS)

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10
Q

Income Statement FORMAT

A

Company name
Income Statement
For the period ended 12/31/23

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11
Q

Revenues

A

Inflows from operating a company or money earned from doing business.
Main source of revenue: SALES REVENUE: amount charged to customers for products or services

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12
Q

Retained Earnings Statement

A
  • net income retained in the corporation
  • “saved net income” includes net income from prior years
  • shows the amounts and causes in retained earnings for a specific period of time (same as I/S)
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13
Q

Retained Earnings Statements FORMULA

A

Beginning retained earnings
+/- net income
- dividends
= ended retained earnings

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14
Q

Dividends

A

Distributions of earnings (in either the form of stock or cash) to stockholders

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15
Q

Balance Sheet (Statement of Financial Position)

A
  • reports assets, liabilities, and stockholders equity as a specific date (cumulative)
  • occurs at a specific date
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16
Q

Accounting FORMULA

A

Assets = liabilities + stockholders equity
Assets - liabilities = stockholders equity

  • accounting equation is the balance sheet formula or “financial picture of the company”
17
Q

Sections of a Balance Sheet

A

Assets, liabilities, and stockholders equity

18
Q

Assets

A
  • listed first and in order of liquidity (how quickly it can be converted to cash)
  • owned by the company
  • have a value (future benefit)
  • ex: cash, office supplies, computers, accounts receivables
19
Q

Liquidity

A

How quickly it can turn to cash

20
Q

Liabilities

A

What a company owes

21
Q

Stockholders Equity

A
  • owners share of the assets after liabilities are paid (“leftover” / “residual”)
    1. Common Stock
    2. Retained Earnings
  • law: creditors are paid before the owners (shareholders)
22
Q

Common Stock

A

Money earned from selling stock

23
Q

Retained Earnings

A

Money earned from running the company

24
Q

Statement of Cash Flows

A
  • reports why a company receives cash (resources) and used cash (uses) during a specific time period
  • helps determine if a company has enough cash to operate and pay dividends
  • all increases and decreases in cash are recognized in operating, investing, and financing activities
25
Q

Operating Activites

A

Cash to and from most revenue and expense (I/S) items

26
Q

Operating Activities INFLOW

A

Inflow: cash from

  • customers (sales, rent)
  • interest earned
  • dividends received
27
Q

Operating Activities OUTFLOW

A

Outflow: cash paid to/for

  • suppliers (of inventory)
  • raw materials
  • employees (salaries)
  • landlords for rent
  • interest expenses
28
Q

Investing Activities

A

Cash to and from the purchase of the resources a company needs to operate

29
Q

Investing Activities INFLOW

A

Inflow: cash from

  • sales of long term assets (such as land, buildings, equipment)
  • sales of investments in other companies
  • collections on loans made to other companies
30
Q

Investing Activities OUTFLOW

A

Outflow: cash paid for/to

  • purchase of a long term asset
  • investments in other companies (purchase of stocks/bonds)
  • loans to other companies
31
Q

Financing Activities

A
  • cash to and from external financing (selling stock or borrowing)
  • generally related to stocks, bonds, and loans from banks
32
Q

Financing Activities INFLOWS

A

Inflows: cash from

  • sale of company’s own stock
  • sale of corporate bonds
  • bank loans
33
Q

Financing Activities OUTFLOWS

A

Outflows: cash to/ for

  • dividends to stockholders
  • reacquire (purchase) company’s own stock (treasury stock)
  • repayments of principal portion of loans, including payment of corporate bonds
34
Q

Annual Report 10K

A

Must contain:

  1. Financial statements for the year
  2. Management Discussion and Analysis (MD+A)
    - covers background of the company, trends, and risks
  3. Notes of the Financial Statements
    - explanation and details about items in the financial statements
  4. Auditors Report
    - CPA inspects company’s financial statements/records to determine if the company is following GAAP and presents a fair financial picture
    - best report contains an unqualified “clean” opinion
35
Q

Auditors Report

A

A report prepared by an independent outside auditor stating the auditors opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with GAAP

36
Q

Unqualified Opinion “clean”

A

Statements are ok, best one

37
Q

Qualified Opinion

A

Statements are ok but with one exception

38
Q

Adverse Opinion

A

Not good; GAAP not followed

39
Q

Disclaimer Opinion

A
  • No opinion is provided
  • not able to perform the audit
  • very bad

Principals Of Accounting (1 decks)

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