Session 1 Flashcards

1
Q

The Accounting Equation

A

Assets = Liabilities + Equity

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2
Q

Two ways to represent the Accounting Equation

A

A = L + OE

A - L = OE

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3
Q

What two numbers are always equal?

A

Total Assets and Total Liabilities & Equity

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4
Q

What is the most fundamental concept in accounting?

A

The Accounting Equation

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5
Q

What other name is the Balance Sheet called?

A

Statement of Financial Position

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6
Q

What are financing activities?

A

Methods that companies use to raise the funds to pay for resources such as land, buildings, and equipment

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7
Q

What are the two sources of financing?

A

Equity financing

Creditor financing

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8
Q

Equity Financing

A

resources contributed to the company by it’s owners along with any income retained by the company. No requirement to pay back.

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9
Q

Creditor Financing

A

Resources contributed to the company from nonowners. Is considered more risky. Legal obligation to repay amounts borrowed, usually with interest.

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10
Q

Three ways to financing a company

A

Debt or liability (Creditor financing)

Internal equity (net income)

External equity (Stock)

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11
Q

GAAP

A

Generally Accepted Accounting Principles

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12
Q

Who has the authority for standards setting?

A

SEC, but generally delegates that to FASB

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13
Q

What is FASB

A

Financial Accounting Standards Board

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14
Q

The Main Financial Statements

A

Balance Sheet

Income Statement

Statement of Cash Flows

Statement of Stockholder’s Equity

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15
Q

Balance Sheet

A

Assets, liabilities and equity at one point in time
Permanent accounts, balance carries over.

GAAP says must show two years.

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16
Q

Income Statement

A

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.

17
Q

Net income

A

Revenues - expenses

18
Q

Retained Earnings

A

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

19
Q

Dividend

A

return of capital

20
Q

Three sections of the Statement of Cash Flows

A

operating
investing
financing

21
Q

Matching principle

A

Matches revenues and expenses

22
Q

Cash is controlled through which financial statement?

A

Balance sheet

23
Q

MD&A

A

Management Discussion and Analysis

24
Q

Independent Auditor Report

A

Unqualified opinion

“In accordance with GAAP”

25
Q

Return on Assets equation

A

Net income / Average Total Assets

26
Q

Inventory Turnover Metric

A

Costs of Goods Sold / Average Inventory