Introduction to accounting, limited companies and regulatory framework, indigenous accounting Flashcards
What is accounting?
An information system that reports on the economic activities and financial condition of a business.
What does financial accounting focus on?
The needs of external users.
What does managerial accounting focus on?
The needs of internal users.
What does the Financial Accounting Standards Board (FASB) use as the foundation for its comprehensive set of accounting methods.
GAAP
Generally
Accepted
Accounting
Principles
Accounting Improves Communication!
What 3 elements is the accounting equation composed of?
Assets
Liabilities
Stockholders equity. This is subdivided into two additional elements called common stock and retained earnings.
What does ALICE stand for?
Assets (Own)
Liability (Owe)
Income (Earn)
Capital (Invest)
Expense (Incur)
What are the 4 primary financial statements that profit businesses use?
Income (Income and Expenses)
Owners Equity
Balance Sheet (Assets and Capital)
Cash Flow Statement
What is an income statement?
Shows how much money a company made over a period of time. It presents revenues, expenses, net income, profits and losses and earnings per share.
What is the difference between operating and non operating revenue?
Operating revenue is generated by selling a company’s goods or services - its core business e.g. tickets for a movie theatre
Non operating revenue is the income earned from non core business activities e.g. interest earned on cash in bank
What is a balance sheet statement?
In contrast to income statement, it reflects information from a specific date in time. It gives information about the organisations liquidity and capitalisation, usually end of day reporting period.
What is a cash flow statement?
CFS measures how well the company generates cash to pay its debts and fund its operating expenses and investments.
What is owners equity?
The owners investment in an asset after they deduct any liabilities e.g. if a business buys a $20k machine, but purchases with a $15k loan, the owners equity in the equipment is $5k. (Asset-Liability).
What is retained earnings?
A firm’s cumulative net earnings/profit after accounting for dividends.
NOTE: they are also referred to as earnings surplus.
What does an annual report consist of?
-Financial statements
-Notes
-Auditors report
-Managements discussion and analysis
What is the equation for assets?
Assets = Liability + Stockholders Equity
