Midterm #1 Flashcards
what is the accouting cycle
- analyze what information if any must be recorded
- record: journal enteries
- adjust: adjust journal enteries
- report: prepare finanical statement
- close: jornalize closing enteries and prepare post-closing trail balance
What is accounting?
The process of measuring economic activity of an entity in monetary terms and communicating the result to users
What are the three categories of business activities?
- Financing
- Investing
- Operating
What are investing activities?
Purchasing or selling items such as land, building, and equipment
What are operating activities?
The day-to-day activities of producing and selling a product or providing a service
Define assets.
Things the company owns, such as cash, buildings, machinery, furniture, and supplies
What is accounts receivable?
The rights to receive cash payments from customers for goods or services provided
Define liabilities.
Obligations the company needs to pay third parties
What is accounts payable?
Money the business owes to various suppliers for goods and services already provided
Define equity.
The book value of the company after liabilities are deducted
What is common stock?
Measures the cash contributed by stockholders when they purchase ownership shares in the company
What are retained earnings?
Income earned by the company, reinvested in the business and not distributed to shareholders
What is the accounting equation?
Assets = liabilities + stockholders equity
What are expenses?
Costs incurred to prepare products or services for sale
What are financial statements?
- Income statement
- Statement of stockholders equity
- Statement of cash flows
- Balance sheet
What does a balance sheet report?
The company’s financial position as of a specific date
- shows assts= liability + stockholders equity
What does an income statement report?
The results of operation for a given period of time including revenues and expenses
What does the statement of stockholders equity report?
Events causing an increase in a company’s stockholders equity during a period
- common stock and retained earning
What is the formula for change in retained earnings?
Beginning of the period + net income - dividends = ending retained earnings
What does the statement of cash flows report?
Cash inflows and outflows during a given period of time
What are the three sections of the statement of cash flows?
- Operating
- Investing
- Financing
How is net income used in financial statements?
It is used to compute ending retained earnings on the statement of stockholders equity
What is included in an annual report (Form 10-K)?
- Financial statements
- Notes to financial statements
- Auditor’s Report
- Management’s Discussion and Analysis (MD&A)
Who are external users of accounting information?
- Investors
- Creditors
- Regulators
What are generally accepted accounting principles (GAAP)?
Overarching rules that govern US financial reporting
What is the role of the Securities and Exchange Commission (SEC)?
Regulating the sale of stock and bonds
What is stockholders equity
owners claim to resources that summarize the change in stockholders equity over time
Net income
difference between revenue and expense
( revenue - expense)
