Lesson 1 (Intriduction & Financial Statements Flashcards
What is this ?
a set of accounting reports that convey economic and financial information to outside users such as creditors and investors
financial statements
What are these ?
1. balance sheet
2. income statement
3. statement of owners equity
4. statement of cash flows
the four major financial statements
What is this ?
the financial statement that portrays
1. assets
2. liabilities
3. equity
balance sheet
What is this ?
the economic resources owned by a business
assets
What is this ?
the debts owed by a business
liabilities
What is this ?
the amount of the owners investment in the business
equity
What’s the fundamental accounting equation ?
Asset = Liabilities + Equity
What are the two major assets categories
- current assets
- long term assets
What is this ?
Assets that are expected to either be concerted into cash or expire within one year
current assets
Examples of Current Assets ?
- Cash
- Accounts receivable
- Inventory
- Supplies
- Deferred expenses (prepaid expenses)
What is this ?
represent amounts owed to the company by its customers
accounts receivable
What is this ?
this is the product the company sells to its customers
inventory
What is this ?
items used in the normal course of business
supplies
What is this ?
assets we expect to be used in business operations for longer than one year
long term assets
Examples of long term assets ?
- property-plant-equipment
- intangibles
What is this ?
long term assets that have a physical substance (you can touch, feel, and see these assets)
property-plant-equipment (P-P-E)
Examples of P-P-E ?
- land
- buildings
- equipment
What does accumulated depreciation do ?
decreases P-P-E
What is this ?
long term assets that lack a physical substance (you can not touch, feel, and see these assets)
intangible assets
Examples of intangibles ?
- trademark
- patent
- copyright
What is this ?
what is a generally accepted accounting principle (GAAP) ?
historical cost concept
What is this ?
assets are to be shown on the balance sheet at their cost (amount which the company paid to acquire them )
historical cost concept
What are the two major categories of liabilities ?
- current liabilities
- long term liabilities
What is this ?
liabilities expected to be paid within one year
current liabilities
Examples of current liabilities ?
- accounts payable
- short term notes payable
- salaries payable
- income taxes payable
- utilities payable
- unearned revenue
Examples of accrued liabilities ?
- salaries payable
- income taxes payable
- utilities payable
What is this ?
debts that will be paid in longer than one year
long term liabilities
Examples of long term liabilities ?
- notes payable
- mortgage payable
- bonds payable
for a corporation (company that sells stock to its owners) there are two types of equity ?
- contributed capital
- retained earnings
What is this ?
represents investments made by owners into the business through the purchase of the organizations stock
contributed capital (common stock)
What is this ?
represents net income earned by the corporation that is kept within the company for growth and expansion (rather than given to the stockholders in the form of a dividend)
retained earnings
What is this ?
the financial statement that shows the profitability of the company for a period of time
income statement
Two items found on the income statement ?
- revenues
- expenses
What is this ?
represent amounts earned during the accounting period (year)
revenues
Examples of Revenues ?
- sales revenue (result from sales of inventory)
- service revenue
- rental revenue
- interest revenue
- dividend revenue
- gain on sale of land
What is this ?
costs incurred in the process of earning revenues
expenses
Examples of expenses ?
- cost of goods sold (cost of inventory sold)
- salaries expense
- rent expense
- utilities expense
- interest expense
- advertising expense
- income tax expense
- loss on sale of land
- advertising expense
- deferred expense (prepaid expense) after it it is used up
- freight out
Income statement equations include?
- revenues - expenses = net income
- sales revenue - cost of goods sold = gross profit
What is this ?
represents the selling price of inventory ( 5 pieces of inventory each sold to customers for $10 would result in sales revenue of $50)
sales revenue
What is this ?
is the cost of the inventory sold ( 5 pieces of inventory sold to customers with each piece costing the seller $6 to purchase would result in cost of goods sold of $30)
cost of goods sold
What is this ?
represents the profit earned from selling inventory
gross profit
What is this ?
this shows the changes in equity for a period of time (the same period of time as that covered by the income statement)
statement of owners equity
For common stock what is the equation?
beginning balance (Jan 1) + additional sales of common stock = ending common stock (Dec 31)
For the retained earnings what is the equation ?
beginning balance (Jan 1) + net income - dividends = ending retained earnings (Dec 31)
Dividends paid by the company to its stockholders are not considered ?
dividends
Equity goes up because of what two things ?
- investments by owner
- revenues
Equity goes down when what two things ?
- dividends/withdrawals
- expenses
Dividends have what effect on the company’s net income ?
no effect
What is this ?
this shows the changes in cash for a period of time (the same period of time as that covered by the income statement)
the statement of cash flows
What information does the statement of cash flows provide ?
- cash receipts (inflows)
- cash payments (outflows)
What are the 3 categories for cash inflows and outflows ?
- operating activities
- investing activities
- financing activities
What category for cash inflows and outflows is this ?
cash inflows and cash outflows associated with the primary operations of the business
operating activities
What category for cash inflows and outflows is this ?
cash inflows and cash outflows associated with eh purchase or sale of long term assets such as P-P-E
investing activities
What category for cash inflows and outflows is this ?
cash inflows and cash outflows associated with the sources of funding the business
financing activities
What’s the equation for total equity for a corporation ?
total equity for a corporation = contributed capital (common stock) + retained earnings
Always right down current assets in order of liquidity which means put these four in order ?
1.inventory
2.cash
3.supplies
4.accounts receivable
- cash
- account recievable
- inventory
- supplies
To make an income statement what do you do ?
Find Gross Profit + Revenues - Expenses = NI
To make a balance sheet what do you do ?
Find Total Assets (current and long term)
Find Total Liability (current and long term)
Find Total Equity (current and long term)
Examples of Equity ?
- common stock
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