Session 1 Flashcards
The Accounting Equation
Assets = Liabilities + Equity
Two ways to represent the Accounting Equation
A = L + OE
A - L = OE
What two numbers are always equal?
Total Assets and Total Liabilities & Equity
What is the most fundamental concept in accounting?
The Accounting Equation
What other name is the Balance Sheet called?
Statement of Financial Position
What are financing activities?
Methods that companies use to raise the funds to pay for resources such as land, buildings, and equipment
What are the two sources of financing?
Equity financing
Creditor financing
Equity Financing
resources contributed to the company by it’s owners along with any income retained by the company. No requirement to pay back.
Creditor Financing
Resources contributed to the company from nonowners. Is considered more risky. Legal obligation to repay amounts borrowed, usually with interest.
Three ways to financing a company
Debt or liability (Creditor financing)
Internal equity (net income)
External equity (Stock)
GAAP
Generally Accepted Accounting Principles
Who has the authority for standards setting?
SEC, but generally delegates that to FASB
What is FASB
Financial Accounting Standards Board
The Main Financial Statements
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Stockholder’s Equity
Balance Sheet
Assets, liabilities and equity at one point in time
Permanent accounts, balance carries over.
GAAP says must show two years.
Income Statement
revenues, expenses, and profit over a period of time. Temporary accounts that are zero-d out at the start of new period.
GAAP says must show 3 years.
Net income
Revenues - expenses
Retained Earnings
Cumulative net income (or net loss) of the company (from it’s inception) less all currrent and previous dividends combined.
Thus, each year, retained earnings increases by net income for that year and decreases by dividends for that year
Dividend
return of capital
Three sections of the Statement of Cash Flows
operating
investing
financing
Matching principle
Matches revenues and expenses
Cash is controlled through which financial statement?
Balance sheet
MD&A
Management Discussion and Analysis
Independent Auditor Report
Unqualified opinion
“In accordance with GAAP”
