M1 Flashcards
Accounting Definition
Information system that collects, processes, and presents financial information about an organization and reports that information to decision makers
Who Besides Shareholders Use Accounting Information?
- Creditors
- Managers
- Investment bankers, Analysts, Rating agencies
- Customers, Suppliers
- Competitors
6.Regulatory agencies
Financial Accounting Reports
Periodic financial statements and related disclosures. They are sent to external decision makers such as investors and creditors.
Managerial Accounting Reports
Detailed plans and continuous performance reports. They are sent to internal decision makers such as managers.
Business Activities
- Operating Activities
- Financing Activities
- Investing Activities
Required Financial Statements
- Balance Sheet
- Income Statement
- Statement of Stockholders Equity
- Statement of Cash Flows
Balance Sheet
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
Assets
Future economic benefits owned or controlled by the firm as a result of past transactions
Liabilities
Future economic sacrifice (transfer assets or provide services) of the firm based on current obligations
Stockholders Equity
Residual interest in the assets after deducting liabilities; also called net assets, shareholders equity or owners equity
Elements of a Balance Sheet
- Assets
- Liabilities
- Stockholders Equity
Assets
-Cash
-Short Term Investments
-Accounts Receivable
-Notes Receivable
-Inventory to be sold
-Supplies
-Pre-paid expenses
-Long term investments
-Equipment
-Buildings
-Land
-Intangibles
Liabilities
-Accounts Payable
-Accrued Expenses
-Notes Payable
-Taxes Payable
-Unearned Revenue
-Bonds Payable
Stockholders Equity
-Contributed Capital
-Retained Earnings
Fundamental Accounting Equation/ Balance Sheet Equations
Assets = Liability + Equity rearranged from Equity = Assets - Liabilities
Equity
Equity is an accounting estimate of the amount of assets left over for stockholders after paying off what the company owes (liabilities)
Income Statement
Shows the entity’s sales (revenue), costs (expenses), and profits for a period of time
Net Income = Revenues - Expenses
Elements of an Income Statement
- Revenue
- Expenses
Revenues
-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
Expenses
-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
Income Statement Equation
Net Income/Loss = Revenues - Expenses
Statement of Stockholders Equity
- Contributed Capital
- Retained Earnings
Contributed Capital
-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
Retained Earnings
-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
