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BSAD.221 - Introductory Financial Accounting > Midterm 1 - Review > Flashcards

Midterm 1 - Review Flashcards

1
Q

what is the purpose of financial accounting?

A

to provide useful info to external users such as investors, creditors, and regulatory bodies for decision-making

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2
Q

what are the key financial statements?

A
  • income statement
  • statement of changes in equity
  • balance sheet (statement of financial position)
  • statement of cash flows
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3
Q

what is an income statement?

A

reports on revenue, expenses, and profit over a specific period

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4
Q

what is a statement of changes in equity?

A

shows changes in shareholders’ equity, including share capital and retained earnings

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5
Q

what is a balance sheet/statement of financial position?

A

displays the company’s assets, liabilities, and shareholders’ equity at a specific point in time

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6
Q

what is a statement of cash flows?

A

details cash inflows and outflows from operating, investing, and financing activities

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7
Q

what does GAAP stand for?

A

generally accepted accounting principles

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8
Q

what is GAAP?

A

rules and guidelines for preparing financial statements

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9
Q

what does IFRS stand for?

A

international financial reporting standards

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10
Q

what is IFRS?

A

standards required for public companies in Canada

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11
Q

what does ASPE stand for?

A

accounting standards for private enterprises

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12
Q

what is ASPE?

A

simplified accounting standards that can be used by private companies

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13
Q

who are the external users of financial information?

A
  • investors
  • creditors
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14
Q

what do investors use financial information for?

A

use financial data to decide whether to buy or sell shares

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15
Q

what do creditors use financial information for?

A

to evaluate a company’s ability to repay debt

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16
Q

what is the fundamental accounting equation?

A

ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY

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17
Q

what are assets?

A

resources owned by the company

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18
Q

what are some examples of assets?

A

cash, inventory, equipment

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19
Q

what are liabilities?

A

obligations or debts owed by the company

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20
Q

what are some examples of liabilities?

A

loans, accounts payable

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21
Q

what is shareholders’ equity?

A

owners’ claim after liabilities (includes share capital and retained earnings)

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22
Q

what are the types of business organizations?

A
  • sole proprietorship
  • partnership
  • corporation
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23
Q

what is a sole proprietorship?

A

single owner, personal liability

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24
Q

what is a partnership?

A

two or more owners, shared profits and liabilities

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25
Q
A
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26
Q
A
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27
Q

what is a corporation?

A

separate legal entity, limited liability, can issue shares

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28
Q

what are the key accounting concepts?

A
  • revenue recognition principle
  • matching principle
  • historical cost principle
  • accrual basis accounting
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29
Q

what is the revenue recognition principle?

A

revenue is recorded when earned, not necessarily when cash is received

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30
Q

what is the matching principle?

A

expenses should be matched with revenues in the period they help generate

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31
Q

what is the historical cost principle?

A

assets are recorded at their original purchase price

32
Q

what is accrual basis accounting?

A

revenue and expenses are recorded when earned or incurred regardless of cash flow

33
Q

what is a transaction?

A

any event that affects the company’s financial position and is measurable in monetary terms (eg. buying supplies, paying wages, selling goods)

34
Q

what do transactions impact?

A
  • assets
  • liabilities
  • equity
  • revenue
  • expenses
35
Q

what is the expanded accounting equation?

A

ASSETS = LIABILITIES + (SHARE CAPITAL + RETAINED EARNINGS)

36
Q

what are retained earnings?

A

reflect accumulated profits minus dividends

37
Q

what is the equation for retained earnings?

A

RETAINED EARNINGS = REVENUES - EXPENSES - DIVIDENDS

38
Q

what are the different types of accounts?

A
  • assets
  • liabilities
  • equity
  • revenue
  • expenses
39
Q

what are the steps for analyzing transactions?

A
  1. use source documents to identify the accounts involved
  2. determine whether each account is increasing vs decreasing and whether to debit vs credit the accounts
40
Q

what are some examples of source documents?

A

invoices, receipts

41
Q

how do debits impact accounts?

A

increase: assets, expenses
decrease: liabilities, equity

42
Q

how do credits impact accounts?

A

increase: liabilities, equity, revenue
decrease: assets

43
Q

what does a debit transaction increase?

A

assets and expenses

44
Q

what does a credit transaction increase?

A

liabilities, equity and revenue

45
Q

what does a debit transaction decrease?

A

liabilities and equity

46
Q

what does a credit transaction decrease?

A

assets

47
Q

where are transactions recorded?

A

in the general journal as journal entries

48
Q

what is the general journal?

A

where transactions are recorded as journal entries

49
Q

what happens to journal entries after they are recorded in the general journal?

A

they are posted to the general ledger

50
Q

what is the general ledger?

A

where journal entries are posted after they are recorded - each account has its own record showing the cumulative effect of transactions

51
Q

what are the characteristics of double-entry accounting?

A
  • each transaction affects at least two accounts (ensuring a balanced equation)
  • for every debit, there is an equal and opposite credit
52
Q

what are the steps in the accounting cycle?

A
  1. analyze transactions
  2. record journal entries
  3. post to the ledger
  4. prepare a trial balance to check that debts equal credits
  5. make adjusting entries at period-end
  6. prepare adjusted trial balance
  7. prepare financial statements
  8. close temporary accounts (revenues, expenses, dividends)
53
Q

what are the temporary accounts?

A
  • revenues
  • expenses
  • dividends
54
Q

what are adjusting entries?

A

adjustments made to an account for transactions not yet recorded, to ensure that revenues are in the correct period

55
Q

what are prepaid expenses?

A

an expense that allocates over time (eg. insurance)

56
Q

what are accrued revenues/expenses?

A

revenues earned or expenses incurred, but not yet recorded

57
Q

what is depreciation?

A

systematic allocation of the cost of a long-term asset

58
Q

what are some reasons for adjusting entries?

A
  • prepaid expenses
  • accrued revenues/expenses
  • depreciation
59
Q

what is closing entries?

A

at year end, temporary accounts are closed to retained earnings to reset their balances for the new period

60
Q

what is cash?

A

includes currency, coins, cheques, and bank account balances

61
Q

what are the forms of cash management?

A
  • separation of duties
  • bank reconciliations
62
Q

what is separation of duties?

A

a form of cash management - different employees handle cash, record transactions, and reconcile bank statements

63
Q

what is bank reconciliation?

A

compare the company’s cash records with the bank statement to identify discrepancies

64
Q

what are some common reconciling items?

A
  • outstanding cheques
  • deposits in transit
  • bank fees
  • errors
65
Q

what are outstanding cheques?

A

cheques written but not yet cleared by the bank

66
Q

what are deposits in transit?

A

deposits made but not yet recorded by the bank

67
Q

what are bank fees?

A

service charges deducted by the bank but not recorded by the company

68
Q

what are errors?

A

mistakes in recording transactions in either the company’s or the bank’s records

69
Q

what are accounts receivable?

A

amounts owed by customers for goods or services provided on credit

70
Q

what is revenue recognition?

A

accounts receivable is recognized when goods/services are delivered, even if payment is later

71
Q

what is a bad debt expense?

A

accounts receivable that are never collected

72
Q

what is the allowance method?

A
  1. estimate uncollectible amounts at the end of the period
  2. record bad debts expense and adjust allowance for doubtful accounts
73
Q

what is the allowance for doubtful accounts?

A

a contra-asset that reduces accounts receivable

74
Q

what is the receivables turnover ratio?

A
  • measures how efficiently a company collects its receivables –> lower ratio indicates collection problems
75
Q

what is the equation for the receivables turnover ratio?

A

RECEIVABLES TURNOVER = NET CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLE

BSAD.221 - Introductory Financial Accounting (1 decks)

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