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Gr 11 Financial Accounting > Unit 7 > Flashcards

Unit 7 Flashcards

1
Q

What is an income statement?

A

A financial report that shows profit / loss for a period of time (not a specific date)

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2
Q

How is the date written on an income statement?

A

EXAMPLES:
For the year ended June 30, 2020
For the month ended January 31, 2023

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3
Q

What are the 2 accounts on the income statement?

A

Revenue
Expenses

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4
Q

Net income =

A

Revenue - expenses

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5
Q

When does net income and net loss occur?

A

Net income: R > E
Net loss: R < E

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6
Q

Interest revenue

A

Interest earned from a company lending money

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7
Q

Commission Revenue

A

Commission is a service fee, and usually a percentage of the total sale

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8
Q

Rental Revenue

A

Money earned for renting a building, equipment, etc.

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9
Q

Sundry expenses

A

Miscellaneous expenses that rarely happen

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10
Q

The income statement has a total of 3 columns. What do the middle and right columns record?

A

Middle: Revenue + expense amounts
Right: Subtotals of R + E

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11
Q

Statement of Owner’s Equity

A

Financial statement that summarizes the changes in Owner’s Equity for a specific period of time

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12
Q

Purpose of Statement of OE

A

Updates the balance in the Owner’s Equity Account which is then reported on the Balance Sheet

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13
Q

What affects the amounts reported in Owner’s Equity?

A
  1. Investments by the owner
  2. Drawings
  3. Net income / loss
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14
Q

What info will you be given when preparing a Statement of OE?

A
  1. Beginning capital
  2. Investments by owner
  3. Net income / net loss (from income statement)
  4. Drawings

Given this information, you will calculate Ending Capital.

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15
Q

Beginning capital

A

Capital account balance at the START of the accounting period

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16
Q

If a company just started its business, what is the beginning capital?

A

Zero

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17
Q

If a company has been in business for a while, then the ending capital of one accounting period is the beginning capital of…

A

The next accounting period

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18
Q

Investments include cash and other assets. What is the purpose of investments? Give 3 answers.

A
  • To start a business
  • To expand
  • To pay outstanding debt
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19
Q

Drawings

A

Withdrawal of money by the business owner for personal use

20
Q

Formula for calculating ending capital:

A

Ending Capital = Beginning Capital + Investments +/- Net Income/Net Loss – Drawings

21
Q

What is a balance sheet also known as?

A

Statement of financial position

22
Q

What is the purpose of a balance sheet?

A

Provide information about a company’s resources and ability to earn profit

23
Q

Accounts recorded on balance sheet

A

A, L, OE

24
Q

Owner’s Equity formula

A

OE = A - L

25
Q

Accounting equation

A

A = L + OE (the balance sheet is based on this equation)

26
Q

In what order are liabilities listed?

A
  1. Accounts Payable
  2. Notes Payable
  3. Unearned Revenue
  4. Payable Accounts (e.g. Salaries Payable, Interest Payable, etc.)
  5. Long-Term Notes Payable
  6. Mortgage Payable
27
Q

List the 4 types of financial statements in the order that they are prepared

A
  1. Income statement
  2. Statement of owner’s equity
  3. Balance sheet
  4. Cash flow statement
28
Q

How are financial statements connected?

A

Information prepared for one financial statement will be used in the preparation of subsequent financial statements

29
Q

How is the income statement connected to the statement of owner’s equity?

A

Profit / net loss from the income statement is used to determine ending capital

30
Q

How is the statement of owner’s equity connected to the balance sheet?

A

The ending capital amount is then transferred to the Balance Sheet under the “Owner’s Name, Capital” account

31
Q

How is the balance sheet connected to the cash flow statement?

A

The cash amount on the Balance Sheet is transferred to the Cash Flow Statement.

32
Q

What is The Annual Report?

A

Document that contains comprehensive financial information (includes financial statements)

Describes a public company’s operations and financial conditions to shareholders

Can be prepared by all types of business entities

33
Q

Closing the books (closing procedures)

A

Journalizing and posting Closing Entries to reduce Temporary Accounts’ balances to zero and update Owner’s Capital account

34
Q

Closing procedures includes 3 steps:

A
  1. Journalizing closing entries
  2. Posting closing entries to the ledger
  3. Preparing a post-closing trial balance
35
Q

Purpose of closing procedures

A

Resets certain accounts for the new accounting period

36
Q

Temporary accounts (a.k.a. nominal accounts)

A
  • Revenue
  • Expenses
  • Drawings
  • Income summary
    ^^ have balances that DO NOT continue to the next accounting period
37
Q

Why do we close temporary accounts?

A

Helps w/ decision-making
e.g. It allows a company to compare its performance from one Accounting Period to the next

38
Q

Permanent accounts (a.k.a. real accounts)

A

Balance Sheet accounts
- Assets
- Contra-assets
- Liabilities
- Contra-liabilities
- Owner’s capital
^^ Balances are carried forwards to the next accounting period and are recorded as opening balances in the ledger of the new accounting period

39
Q

What are closing entries? Where and when are they made?

A

They transfer the balances of the Temporary Accounts to the Owner’s Capital account

They are recorded at the end of the accounting period in the General Journal

40
Q

Income summary account

A

A temporary account used to close revenue and expense accounts

41
Q

T or F: The income summary account is only used for closing procedures

A

T

42
Q

The Income Summary Account will summarize Revenue and Expense accounts in one Ledger Account, which will then reveal Net Income or Net Loss. Where is this amount transferred to?

A

The Owner’s Capital account.

43
Q

Income summary account number

A

303

44
Q

How to close revenue accounts:

A

DR Revenue
CR Income summary

45
Q

How to close expense accounts:

A

DR Income Summary
CR Expense

46
Q

How to close income summary account:

A

If there is a profit (R > E):
DR Income summary
CR Owner’s capital

If there is a loss (R < E):
DR Owner’s capital
CR Income summary

47
Q

How to close drawings account:

A

DR Owner’s capital
CR Drawings

Gr 11 Financial Accounting (7 decks)

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