Module 1 Flashcards
What is the accounting equation?
It is the basic tool of accounting measuring the resources of a business (assets) and the claims to these resources (what the business owes to its creditors and owners).
What are assets?
Assets are economic resources that are expected to benefit the business in the future and that have a value.
What are liabilities?
Liabilities are anything a business owes that has to be paid in the future. In other words, liabilities represent the creditor´s claims to the business´s assets.
What is (owner´s) equity?
(Owner´s ) equity is the owner´s claim to the assets left over of a business after a business has paid all of its liabilities (net worth).
What are revenues?
Revenues are earnings that result from delivering goods and services to customers.
What are expenses?
Expenses are the costs of selling goods and services.
What is owner´s capital?
owner´s contribution to a business that increase the owner´s equity. It can be either cash or other assets.
What are owner´s withdrawals?
Payment of equity (normally cash but could also include other properties) to the owner.
What is net income?
It occurs, when revenues > expenses and it increases owner´s equity.
What is net loss?
It occurs, when revenues < expenses and it decreases owner´s equity.
What are financial statements?
Financial statements are business documents used to deliver the informations needed to make business decisions.
What are the 4 financial statements (meant for external users)?
The 4 financial statements are:
- Income Statement;
- Stockholder´s Equity;
- Balance Sheet;
- Statement of Cash Flows.
What is the Income Statement?
The Income Statement reports either the net income or the net loss of a business in a specific period of time.
What is the main question the income statement answers?
Is this business profitable?
What is the Statement of Stockholder´s Equity?
The Statement of Stockholder´s Equity reports how the owner´s capital account has changed from the beginning to the end of the year.
What is the main question the Statement of Stakeholder´s Equity answers?
How the business uses its earnings?
What is the Balance Sheet Statement?
The balance sheet statement reports assets, liabilities and owner´s equity as of a specific date.
What is the main question the Balance Sheet Statement answers?
What are the assets of a business and who has a claim over them?
What is the Statement of Cash Flows?
The Statement of Cash Flows reports a business´s receipts and cash payments for a specific time period.
What is the main question the Statement of Cash Flows answers?
Does the business generate enough cash to pay its bills?
What are operating activities?
The operating activities are the daily processes conducted by a company to generate income
What are investing activities?
Investing activities include the purchase and sale of land and equipment for cash.
What are financing activities?
Financing activities include cash contributions by the owner and owner´s withdrawals of cash.
With what must the ending cash balance in the statement of cash flows match?
The ending cash balance in the statement of cash flows must match the cash balance on the balance sheet.
