Introduction – Financial Statements and Business Decisions Flashcards
What are some qualities of a sole proprietorship
- Unlimited liabilty
- No legal requirements to produce accounting information
- Owned by one person
What are some qualities of a partnership
- Owned by two or more people
- The partners of the business have unlimited liability.
- Can be restructured or dissolved by agreement of partners
What are some qualities of a limited company
- Owners have limited liability
- Required to publish audited financial statements
What are the two main sources of finance for a business and what do they gain
Stockholders: dividends, potential higher stock prices in future.
Creditors: interest
Who are the main two people accountants report their findings to
Managers (internal decision makers) + Investors and Creditors (external decision makers)
What is the difference between financial accounting and managerial accounting
Financial accounting creates periodic financial statements and related disclosures for external decision makers.
Managerial accounting creates detailed plans and continuous performance reports for internal decision makers
What are the four basic financial statements
- Statement of Financial Position SFoP
- Income statement
- Statement of changes in equity
- Statement of cash flows
What is a Statement of Financial Position (SFoP)
reports the amount of assets, liabilities and equity of an accounting entity at a point in time
What is an Income Statement
reports the revenues less the expenses of the accounting period
What is a Statement of Changes of Equity
reports the changes in each of the
company’s stockholders’ equity accounts
What is a Statement of Cash flows
reports inflows and outflows of cash during
the accounting period in the categories of operating, investing, and financing.
What is the SoFP equation
A(assets) = L(liabilities) + SE(stockholders equity)
What is equity
The residual interest in the assets of the entity after deducting all its liabilities
