Section2 Flashcards
resources
property or rights
assets
property or rights that provide probable FUTURE ECONOMIC BENEFIT
What is the basic accounting equation?
Assets = Liabilities + Owners’ Equity
liabilities
probable FUTURE OBLIGATIONS to pay assets (usually cash) or provide services to another entity
owner’s equity
amount of ASSETS PROVIDED BY OWNERS
or
amount of owners’ rights to assets in the event of business termination
2 ways owners provide assets
- cash or asset contributions in exchange for shares of stock
- allowing increases in assets arising from profitable operations to be retained
balance sheet
statement of FINANCIAL POSITION
and HOW RESOURCES HAVE BEEN OBTAINED
at various POINTS IN TIME
financial position
assets, liabilities, and owners’ equity
income statement
statement of
- operations
- profit
- earnings
- loss
for various PERIODS of time
statement of cash flows
presents the major inflows and outflows of cash for a company
for various periods of time
what are a company’s assets financed through debt?
liabilties
what are a company’s assets financed through equity?
owners’ equity
expenses
the amount of outflowing assets representing a cost of providing goods or services for sale
revenues
the amount of inflowing assets from the sale or providing of goods or services to customers
cost of goods sold
an expense representing the cost of inventory sold to customers
profit or net income is ALWAYS defined in terms of
revenues minus expenses equals net income
R—E=NI
dividends
the amount of assets distributed to owners (stockholders) from current or previous profits
2 ways that owners may provide capital to a business
capital contributions
retained earnings
net income equals
revenues minus expenses
profit is synonymous with
earnings or net income
NI
net income
RE
retained earnings
D
dividends
R
revenues
E
expenses
inflows of cash or any asset are recorded as revenues only when
received as a result of providing goods and services
t/f an owner’s contribution/investment of cash into his or her business would be recoded as revenue to the business
false
capital contributions are also known as
capital stock
capital contributions + retained earnings =
owners’ equity
t/f warranty obligations might be an example of probable future obligations to provide services
true
t/f assets are recorded as assets only to the extent they have probable future economic benefit to the company
true
retained earnings is not a description of an asset, it is a description of
HOW some of a company’s ASSETS WERE RECEIVED
the increase in a business’ cash as a result of borrowing from a bank would
increase the business assets and increase its liabilities
a company’s purchase of inventory with cash would
have no net effect on the business assets, liabilities, or owners’ equity
an owner’s contribution of cash into his or her business would
increase the business assets and increase its owner’s equity
a company’s profitable sale of inventory to a customer for cash would
increase the business’ total assets and increase its total owner’s equity
revenues and expenses affect a company’s profit or net income, which affects its
retained earnings, a part of owners’ equity
revenues—expenses=
net income
owner’s equity accounts
revenues
expenses
revenues and expenses are owners equity accounts because
they indirectly affect retained earnings
t/f cash is considered revenue
false, cash is an asset
The balance sheet is affected by activity over a period of time, but does not
show that activity, instead it reflects only the balance at the end of that period
What is directly reflected in a statement of retained earnings?
dividends
is “prepaid” an asset or expense?
asset
t/f divdends do not appear on the balance sheet or the income statement
true
unearned revenue is a….
liability
a balance sheet is affected by, but does not show
activity
Which statement or statements show activity over a period of time?
income statement and statement of cash flows
the income statement reports net income for
a period of time
the balance sheet portrays the financial position
at the end of a period
Which financial statement is not required under GAAP, but typically provided?
Statement of Retained Earnings/Owners’ Equity
Which General Purpose Financial Statements are required under GAAP?
Income Statement, Statement of Cash Flows and Balance Sheet
T/F Supplemental and explanatory footnotes to the financial statements are also required under GAAP to provide additional information to statement users
true
Which financial statement embodies the basic accounting equation?
the balance sheet
