Need to KNOW Flashcards
Q: Purposes and Uses of Accounting Information (Ch 1)?
Purpose: To provide financial information that is useful for making business decisions. Uses: Helps stakeholders (investors, managers, regulators) evaluate a company’s performance, financial health, and future prospects.
Q: Difference Between Financial and Managerial Accounting (Ch 1)?
Financial Accounting: Focuses on providing information to external users (investors, creditors) and adheres to GAAP/IFRS. Managerial Accounting: Geared towards internal users (management) to aid in decision-making, planning, and controlling processes.
Q: Difference Between Internal and External Users of Accounting Information (Ch 1)?
Internal Users: Managers and employees who use accounting information to make operational decisions. External Users: Investors, creditors, and regulators who use financial statements to make investment or lending decisions.
Q: Components of the Fraud Triangle (Ch 1)?
Opportunity: The situation that allows fraud to occur. Pressure: Incentive or motivation to commit fraud. Rationalization: Justification or reasoning behind committing fraud.
Q: Calculation for Return on Assets (Ch 1)?
Formula: ROA = Net Income ÷ Average Total Assets. Purpose: Measures a company’s ability to generate profit from its assets.
Q: Expanded Accounting Equation and How Various Transactions Affect It (Ch 1 & 2)?
Expanded Equation: Assets = Liabilities + (Owner’s Capital − Owner’s Withdrawals + Revenues − Expenses). Effect: Increase in assets may increase equity (revenue) or liabilities (borrowing); decrease in assets may decrease equity (expenses) or liabilities (debt payment).
Q: Normal Account Balances and How to Increase or Decrease Various Accounts (Ch 2)?
Assets: Normal balance = Debit; Increase with Debit, Decrease with Credit. Liabilities and Equity: Normal balance = Credit; Increase with Credit, Decrease with Debit.
Q: Differences and Similarities in Forms of Business Organizations (Ch 1)?
Sole Proprietorship: Owned by one person; unlimited liability. Partnership: Owned by two or more people; shared liability. Corporation: Separate legal entity; limited liability; double taxation. LLC: Limited liability and pass-through taxation.
Q: Accounting Assumptions, Principles & Constraints Covered in Class (Ch 1)?
Assumptions: Monetary Unit (transactions in currency), Time Period (activities in specific periods). Principles: Revenue Recognition (revenue when earned), Expense Matching (expenses matched with revenue). Constraints: Cost-Benefit (benefits must outweigh costs).
Q: The 5 Basic Steps of the Accounting Process/Cycle and Their Order (Ch 2)?
- Analyze Transactions. 2. Journalize. 3. Post to Ledger. 4. Prepare Trial Balance. 5. Prepare Financial Statements.
Q: Account Types (Ch 1 & 2)?
Assets: Cash, Prepaid Insurance, Land. Liabilities: Accounts Payable, Unearned Revenue. Equity: Common Stock, Retained Earnings.
Q: Debit = Left, Credit = Right (Ch 2)?
Debit (Dr): Left side of an account. Credit (Cr): Right side of an account.
Q: Different Types of Source Documents (Ch 1 & 2)?
Examples: Invoices, Receipts, Bank Statements, Checks, Sales Orders.
Q: Where Accounts Fall on Financial Statements (Ch 1 & 2)?
Balance Sheet: Assets (Cash), Liabilities (Accounts Payable), Equity (Common Stock). Income Statement: Revenues (Sales), Expenses (Salaries Expense). Statement of Retained Earnings: Dividends.
Q: How to Calculate Net Income (Ch 1 & 2)?
Formula: Net Income = Revenues − Expenses. Purpose: Determines a company’s profitability over a period.
