Unit 1 - Introduction to Financial Accounting Flashcards
What are the three main components of the accounting equation?
Assets, Liabilities, Owner’s Equity
Define assets in the context of a business.
Economic resources expected to benefit the business in the future
What is the formula for calculating Owner’s Equity?
Owner’s Equity = Assets - Liabilities
List the four basic business activities/business transactions.
- Purchases
- Sales
- Payments
- Collections
What is revenue?
Increase in EQUITY from delivering goods or services to customers
What does an expense represent?
Decrease in EQUITY that results from operations
When do we recognize a profit?
When Revenue > Expenses
When do we recognize a loss?
When Expenses > Revenue
Who uses accounting information?
Everyone, including managers, investors, bankers, suppliers, customers, and employees
What is a proprietorship?
A small business with a single owner called the proprietor
How is a partnership defined?
A business owned by two or more co-owners
What distinguishes a corporation from other business types?
It is owned by stockholders and operates as an artificial person
What is the definition of liabilities?
Economic obligations payable to outsiders (creditors)
What is owner’s equity?
Insider claims of a business representing ownership
What is retained earnings?
Amount earned by income-producing activities kept for use in the business
Fill in the blank: For an item to be considered an asset, it must have _______.
monetary value
What are current assets?
Cash and assets expected to be converted to cash within one year
What are intangible assets?
Assets without physical qualities but have value based on rights or privileges
What is the cost principle?
Cost assigned to an asset includes purchase price and associated costs
What is an account payable?
An obligation to pay back borrowed money orally promised
What is a note payable?
A written promise to pay back borrowed money
Calculate the owner’s equity if assets are 174,300€ and liabilities are 82,000€.
92,300€
Calculate the assets if owner’s equity is 22,000€ and liabilities are 36,000€.
58,000€
What is the result of operations if revenues are 77,600€ and expenses are 81,300€?
Net Loss of 3,700€
