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MSCI 261 > Section 1: Accounting > Flashcards

Section 1: Accounting Flashcards

1
Q

What is accounting in business transactions

A

Records, analyzes and reports transactions. Used to estimate future costs

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2
Q

Who uses financial accounting?

A

Managers, Investors, Creditors, the government

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3
Q

What are the three types of business ownership

A

Sole Proprietorship, Partnership, corporation

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4
Q

What are the characteristics of a sole proprietorship?

A

One owner, unlimited liabilities

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5
Q

What are the characterisitics of a partnership?

A

Multiple owners, unlimited liabilities

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6
Q

What are the characteristics of a corporation?

A

Owned by shareholders. Limited liability

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7
Q

How does a company become publically traded?

A

IPO

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8
Q

What are the consequences of being a publically traded company?

A

Need to disclose financial statements

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9
Q

What are the four types of financial statements?

A

Balance sheets, Income statements, cash flow statements, statement of shareholder’s equity

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10
Q

What is a balance sheet?

A

summary of a firms finances. Shows assets and liabilites. Provides a picture of financial health

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11
Q

What is an income statement?

A

Summary of a firms operating result

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12
Q

What is a cash flow statement?

A

Cash recieved & spent by the firm

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13
Q

What is a statement of shareholders’ equity?

A

Firms activity in stocks, retained earnings and changes to the owners’ equity.

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14
Q

What is an asset?

A

Something that a company owns. Current assets( cash, accounts receivables), fixed assets (property, equipment)

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15
Q

What is a liability?

A

What the firm owes. Current expenses ( expenses, notes) and long term liabilities (loans & bonds)

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16
Q

What is owner’s equity?

A

Stock shares, retained earnings

17
Q

How do you calculate the assets of a firm?

A

Assets = Liabilities + Owner’s Equity

18
Q

What are the common components of an income statement?

A

Operating income, non operating income, operating expenses, net income before tax, net income after tax, earnings per share

19
Q

What is operating income?

A

Sales revenues, returns & allowances

20
Q

What is non operating income?

A

Rents, Interest

21
Q

What are operating expenses

A

Cost to do business, cost of goods, promotion, depreciation and general expenses

22
Q

How do you calculate net income before tax?

A

Net income = Revenue - Expenses

23
Q

How do you calculate Net income after tax

A

Net Income after tax = Net income before tax - taxes

24
Q

How do you calculate Earnings per share

A

EPS = net income after tax / number of shares

25
Q

What is financial ratio analysis?

A

using the balance sheet and income statement to derive info? (Update)

26
Q

What is trend analysis?

A

Evaluates the financial performance over time

27
Q

What is industry analysis

A

compares a firm to the other firms in the industry

28
Q

What is a liquidity ratio?

A

Liquidity Ratio = Current Assets/ Current Liabilities

29
Q

What does the liquidity ratio indicate?

A

The ability of the firm to pay back short term debts

30
Q

What the Quick (Acid-test) Ratio?

A

Quick Ratio = Quick Assets/Current Liabilities

31
Q

What does the quick ratio indicate?

A

The ability of a firm to instantly pay off debt (doesnt include inventory)

32
Q

What are the three profitability ratios?

A

Gross profit margin, net profit ratio, return on asset

33
Q

How do you calculate Gross profit margin?

A

Gross Profit / Total Sales

34
Q

How do you calculate Net Profit Ratio?

A

Net Income/Total Sales

35
Q

How do you calculate Return on asset?

A

Net Income/Total Assets

36
Q

What does gross profit margin indicate?

A

Use of expenses to generate gross profits

37
Q

What does net profit ratio indicate?

A

The profit margin - the cost efficiency of operations

38
Q

What does return on asset indicate?

A

The effectiveness of using the companies assets to generate profits

MSCI 261 (3 decks)

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