Untitled Deck Flashcards
What are the four components of an accounting information system?
Information recording, reporting, identification, and analysis.
Define the accounting equation.
Assets = Liabilities + Equity.
What are the three main financial statements?
Income statement, statement of financial position (balance sheet), and statement of cash flows.
Who are the main users of financial information?
Internal users (managers, employees, owners) and external users (lenders, customers, competitors, government, etc.).
What is the main difference in the purpose of management and financial accounting?
Management accounting produces specific-purpose reports, while financial accounting produces general-purpose reports.
Which type of accounting is regulated?
Financial accounting.
What time horizon does management accounting focus on?
Both future and past.
What time horizon does financial accounting focus on?
Past (historical).
What does the income statement show?
Profitability, calculated as revenue minus expenses.
What does the statement of financial position (balance sheet) show?
The financial position of a business, including its assets, liabilities, and equity.
What does the statement of cash flows show?
Cash inflows and outflows during a period.
How are financial statements connected?
Net income from the income statement is added to equity in the balance sheet and affects the statement of cash flows.
What is a current asset?
An asset expected to be sold, consumed, or converted to cash within a year.
What is a non-current asset?
An asset not expected to be converted to cash within a year, such as equipment or property.
What is a current liability?
A liability due within one year, such as trade payables.
What is a non-current liability?
A long-term liability not due within one year, such as loans or mortgages.
What happens to the accounting equation if a company buys equipment worth $10,000 with cash?
Assets (cash) decrease by $10,000, and assets (equipment) increase by $10,000. Total assets remain unchanged.
How does profit affect the accounting equation?
Profit increases equity, so: Assets = Liabilities + (Equity + Profit).
What are the four criteria for identifying an accounting asset?
Probable future economic benefit. Right to control the resource. Benefit arises from a past transaction. Can be reliably measured in financial terms.
How are claims classified on the balance sheet?
As current liabilities and non-current liabilities.
The balance sheet shows how much a business is worth.
False. It shows the book value, but not the market value, as intangible factors like brand value are excluded.
Equity is an asset because it belongs to the owner.
False. Equity represents the owner’s claim on the business after liabilities are subtracted from assets.
