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Accounting and Financial Reporting > M1 > Flashcards

M1 Flashcards

1
Q

Accounting Definition

A

Information system that collects, processes, and presents financial information about an organization and reports that information to decision makers

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2
Q

Who Besides Shareholders Use Accounting Information?

A
  1. Creditors
  2. Managers
  3. Investment bankers, Analysts, Rating agencies
  4. Customers, Suppliers
  5. Competitors
    6.Regulatory agencies
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3
Q

Financial Accounting Reports

A

Periodic financial statements and related disclosures. They are sent to external decision makers such as investors and creditors.

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4
Q

Managerial Accounting Reports

A

Detailed plans and continuous performance reports. They are sent to internal decision makers such as managers.

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5
Q

Business Activities

A
  1. Operating Activities
  2. Financing Activities
  3. Investing Activities
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6
Q

Required Financial Statements

A
  1. Balance Sheet
  2. Income Statement
  3. Statement of Stockholders Equity
  4. Statement of Cash Flows
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7
Q

Balance Sheet

A

Shows what the firms owns (assets), what the firm owes (liabilities), and the owners’ claim on the firm’s assets (equity) at a given point in time (last day of the reporting period) Sometimes Balance sheet is also referred to as the Statement of Financial Position

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8
Q

Assets

A

Future economic benefits owned or controlled by the firm as a result of past transactions

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9
Q

Liabilities

A

Future economic sacrifice (transfer assets or provide services) of the firm based on current obligations

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10
Q

Stockholders Equity

A

Residual interest in the assets after deducting liabilities; also called net assets, shareholders equity or owners equity

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11
Q

Elements of a Balance Sheet

A
  1. Assets
  2. Liabilities
  3. Stockholders Equity
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12
Q

Assets

A

-Cash
-Short Term Investments
-Accounts Receivable
-Notes Receivable
-Inventory to be sold
-Supplies
-Pre-paid expenses
-Long term investments
-Equipment
-Buildings
-Land
-Intangibles

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13
Q

Liabilities

A

-Accounts Payable
-Accrued Expenses
-Notes Payable
-Taxes Payable
-Unearned Revenue
-Bonds Payable

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14
Q

Stockholders Equity

A

-Contributed Capital
-Retained Earnings

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15
Q

Fundamental Accounting Equation/ Balance Sheet Equations

A

Assets = Liability + Equity rearranged from Equity = Assets - Liabilities

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16
Q

Equity

A

Equity is an accounting estimate of the amount of assets left over for stockholders after paying off what the company owes (liabilities)

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17
Q

Income Statement

A

Shows the entity’s sales (revenue), costs (expenses), and profits for a period of time
Net Income = Revenues - Expenses

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18
Q

Elements of an Income Statement

A
  1. Revenue
  2. Expenses
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19
Q

Revenues

A

-Increases in assets (cash or receivables) or settlements of liabilities during a period from providing goods or services
-Cash does not have to be received from the customers in order to recognize revenue
-Revenue examples = Sales Revenue, Interest Revenue, Rent Revenue, etc

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20
Q

Expenses

A

-Decreases in assets or increases in liabilities int he process of producing revenue or carrying out daily operation of an entity.
-Note that cash does not have to be spent in order to recognize expenses
Expense examples = COGS( cost of goods sold), wage expense, rent expense, depreciation expense, etc

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21
Q

Income Statement Equation

A

Net Income/Loss = Revenues - Expenses

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22
Q

Statement of Stockholders Equity

A
  1. Contributed Capital
  2. Retained Earnings
23
Q

Contributed Capital

A

-Amount of financing provided by the owners
-Owners contribute capital to the company by buying shares
-Stock Accounts

-Contributed Capital Examples = Common Stock, Additional Paid in Capital from Common Stock, Preferred Stock, Additional Paid in Capital from Preferred Stock

24
Q

Retained Earnings

A

-Past earnings not distributed to stockholders
-Accumulated profits less payments to owners (dividends)
-Undistributed Earnings

Retained Earnings =Beginning Retained Earnings + Net Income - Dividends Declared = Ending Retained Earnings

25
Q

Statement of Cash Flows

A

-Present how/why the cash balance changes from the beginning of the period to the end of the period
- Measures the inflow or outflow of cash by operating, investing, and financing activities

26
Q

Cash Flow from Operating Activities

A

Cash collected from customers less cash paid for operating expenses such as cash paid to suppliers and employees

27
Q

Cash Flows from Investing Activities

A

Cash flows related to acquisition or sale of the company’s plant and equipment and investments

28
Q

Cash Flows from Financing Activities

A

Cash flows from the receipt or payment of money to investors and creditors (except suppliers)

29
Q

GAAP

A

Generally Accepted Accounting Principles (GAAP)

30
Q

GAAP Problems

A

-Few non financial measures
-Different measurement bases
-Tends to reflect past events and transactions
-Internally developed assets are not always recognized
-Timeliness (quarterly and anuall reports)

31
Q

Footnotes

A

Footnotes in financial statements
-Explain how the numbers are calculated
-Provide disaggregated information
-Disclose additional information

32
Q

Managements Responsibility

A

Management is responsible for the content and preparation of financial statements. This responsibility is reiterated in a formal report called the “Report of Management” or the “Management Certification”

33
Q

Auditors

A

-CPA’s
-Independent Firms
-SEC Act of 1934

34
Q

Fundamental Qualitative Characteristics

A

-Relevance can influence a decision
-Faithful representation complete, neutral, and free from error

Attributes that enhance qualitative characteristics = Comparability, verifiability. timeliness, and understandability

35
Q

Accounting Assumptions

A
  1. Separate Entity Assumption
  2. Monetary Unit Assumption
    3 Going Concern Assumption/Continuity Assumption
36
Q

Separate Entity Assumption

A

Business Transactions are seperate from the transactions of the owners

37
Q

Monetary Unit Assumption

A

Each business entity accounts for tis activities in the national monetary unit without any adjustment for changes in purchasing power (e.g. inflation)

38
Q

Going Concern Assumption/Continuity Assumption

A

A business is assumed to continue operating into the foreseeable future

39
Q

Business Transactions

A

-Events that have an economic impact on the business are recorded in the accounting system called transitions
-Transactions can be internal or external depending on whether the events involve exchanges with an outside party
-Events that involve only the exchange of promises are not considered transactions and are not recorded in the accounting system (examples = employment contract, order agreement, etc)

40
Q

Accounts

A

Accounts place where all changes in one of the firms assets, liabilities, equity, revenue or expenses are recorded

  • Effects of transactions are recorded in the accounts
41
Q

Accounting Cycle

A
  1. Analyze Transaction
  2. Record Journal Entries
  3. Post Journal Entries to Ledger
    4 Prepare a Trial Balance
  4. Adjusting Entries
  5. Prepare Financial Statements
  6. Closing Entries
42
Q

Transaction Analysis

A
  • Every transaction has at least 2 effects (dual effect) on the basic accounting equation
    -Every transaction affects at least two accounts
  • correctly identifying those accounts and the direction of the effect (increase or decrease) is critical
    -The accounting equation must remain in balance after each transaction
    Assets = Liabilities + Stockholders Equity
43
Q

Dual Effects

A
  1. Increase an asset and Increase either liability or shareholder equity
  2. Decrease and asset and decrease either a liability or shareholder equity
  3. Increase one asset and decrease another asset
  4. Increase one liability or shareholders equity and decrease another liability or shareholder equity
44
Q

Record Journal Entries

A

-Journal entry is an accounting method for expressing the effects of a transaction on accounts
-To ensure that accounting equation is balanced, each transaction affects at least two accounts (double entry system)

45
Q
A
46
Q

Debit & Credit Rules

A

-Assets have debit balances
-Liabilities and equity have credit balances

-Debit means “left” and credit means “right”. It does not mean increase or decrease unless you know what kind of account you are referencing.

Debit =Credit + Credit
Debits = Credits

47
Q

Debit (Dr.)

A

Debit = Left
1. An increase in an asset
2. A decrease in a liability
3. A decrease in shareholders equity

48
Q

Credit (Cr.)

A

Credit = Right (opposite of debit)
1. A decrease in an asset
2. An increase in a liability
3. An increase in shareholders equity

49
Q

Post Journal Entries to Ledger

A

-Ledger accounts are also called “T-accounts”
-T-accounts are a useful tool for summarizing transaction effects for each account and determining account balances

50
Q

Trial Balance

A

-Trial Balance is a listing of the ending balance in each account in the general ledger

  • The purpose of the trail balance is to make sure the debits and credits are equal
  • Trial balance lists accounts in financial statement order (assets, liability, equity, revenue and expenses)
51
Q

Financial Statement Order

A

assets, liability, equity, revenue and expenses

52
Q

Classified Balance Sheet

A
  • Assets and liabilities are classified into 2 categories
    1. Current
    2. Non-current

-Current assets are those to be used or turned into cash within the upcoming year

-Non-current assets are those that will last longer than one year

-Current liabilities are those obligations to be paid or settled in the next 12 months with current assets

53
Q

Current Ratio

A

-Current ratio measures short term liquidity or a firms ability to meet its short term obligations using its current assets

Current Ratio = Current Assets/ Current Liabilities

Accounting and Financial Reporting (1 decks)

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