Lesson 3: Accounting Introduction

Question 1

Accounting

Answer 1

identifying, recording, analyzing, summarizing and communicating financial information. Provides insight into financial status of an organization.

Question 2

Accounting Cycle

Answer 2

1. Analyzing Business Transactions:
2. Journalize the Transactions
3. Post to Ledger Accounts
4. Prepare a Trial Balance
5. Journalize and Post Adjusting Entries
6. Prepare and Adjust Trial Balance
7. Prepare Financial Statements (income statement, retained earnings statement, balance sheet, statement of cashflows)
8. Journalize and Post Closing Entries
9. Prepare a Post-Closing Trial Balance

Question 3

Financial Statements

Answer 3

written records that convey the business activies and the financial performance of a company.

Question 4

Income Statement/P&L Statement/Profit and Loss Statement/Statement of Income/Statement of Operations

Answer 4

shows a company’s revenues and expenses over a period of time and finally it’s net income.
- Date range usually listed in the header.

Question 5

Cash Flow Statement/Statement of Cash Flows

Answer 5

shows inflows and outflows of cash within a business over a period of time

Question 6

Balance Sheet/Statement of Financial Position

Answer 6

Shows balance of assets, liabilities, of a company in a point in time. (snapshot of financial information)

Question 7

Liability

Answer 7

Monetary values which a company owes to others (the state of being responsible for something, especially by law)

Question 8

Equity

Answer 8

Owner/shareholders claim on the company’s assets after the liabilities have been paid

Question 9

Assets

Answer 9

Anything a company owns that has a monetary value and is expected to generate future economic benefits for the company

Question 10

Equation for assets?

Answer 10

LIABILITIES + EQUITY = ASSETS

Question 11

Current Assets

Answer 11

can be liquidated (converted to cash) in less than 1 year

Question 12

Current Liabilities

Answer 12

due (and have to be paid back) within 1 year

Question 13

Long Term Assets

Answer 13

cannot be converted to cash in 1 year

Question 14

Long Term Liabilities

Answer 14

due in more than 1 year

Question 15

Indicator of a company’s profitability

Answer 15

Income Statement

Question 16

Net sales

Answer 16

amount of money a company is pulling in from sales

Question 17

Cost Of Goods Sold (COGS)

Answer 17

direct costs incurred while producing goods

Question 18

Material Costs (COGS)

Answer 18

costs of materials used to manufacture a product

Question 19

Labor Costs (COGS)

Answer 19

amount a company pays to its employees to produce this product

Question 20

Gross Profit
(equation?)

Answer 20

a company’s profit after deducting the costs associated with producing.

Net sales - Cost of goods sold

Question 21

revenues > expenses

Answer 21

Profitable company

Question 22

Operating expenses

Answer 22

expenses of business that aren’t included in COGS

Question 23

Income Before Taxes equation

Answer 23

Gross Profit - Operating Expenses

Question 24

Net income + equation

Answer 24

total amount a business earned/lost this period
income before taxes - income tax expense

Question 25

Three types of cash flows

Answer 25

1. Operating services
2. Investing activities
3. Financing activities

Question 26

Cash flow from operating services

Answer 26

cash generated or paid out through the core functions of the business

Question 27

Cash flow from investing activities

Answer 27

investments the business has made such as purchasing or selling plant, property, equipment assets, or marketable securities

Question 28

Cash flow from financing activities

Answer 28

sources of cash from investors and banks, as well as the way cash is paid to shareholders

Question 29

Why is cash flow statement important?

Answer 29

→ Harder to manipulate.
→ Positive cash flow indicates that a company’s liquid assets are increasing, this enable it to settle debts, reinvest in its business, return money to shareholders, pay expenses, provide a buffer against future financial challenges.

Question 30

Annual report

Answer 30

corporate document spread to shareholders that spells out the company’s financial condition and operations over the previous year