Intro to Financial Accounting Test 1 – Flashcards
Unlock all answers in this set
Unlock answersquestion
Sole Proprietorship
answer
- Simple to establish - Owner controlled - Personally liable - Tax advantage
question
Partnership
answer
- Simple to establish - Personally liable - Tax advantage
question
Corporation
answer
- Stock owned - No personal liability - Easy to fund raise - Separate entity under state corporation laws
question
Two primary sources of obtaining outside funds
answer
- Borrowing money (Payable) - Issuing stock
question
3 Business Activities
answer
- Financing - Investing - Operating
question
Operating Activities
answer
- Activities involved in running the business - Revenue - Inventory - Accounts Receivable - Expenses - Liabilities - Net Income - Net Loss
question
Investing Activities
answer
- Always involve assets - Purchasing of resources
question
Financing Activities
answer
- Activities that involve liabilities or equity - Borrowing money
question
Expenses (definition)
answer
- Cost of assets consumed or services used, - Cost of goods sold, selling, marketing, administrative, interest, and income tax expense
question
Revenues (definition)
answer
-Amounts earned from the sale of products (sales revenues), service revenue, and interest revenue
question
Inventory (definition)
answer
- Goods available for sale to customer
question
Accounts Receivable (definition)
answer
- Right to receive money from a customer, in the future, as a result of a sale or service that has already occurred.
question
Net Income (definition)
answer
-Total revenues exceed total expenses
question
Net Loss (definition)
answer
-Total expenses exceed total revenue
question
Liability (from expenses) (definition)
answer
arise from expenses include accounts payable, interest payable, wages payable, sales taxes payable, income taxes payable
question
The Four Financial Statements
answer
1) Income Statement 2) Balance Sheet 3) Retained Earnings Statement 4) Statement of Cash Flows
question
Income Statement (equation)
answer
- [ Revenues - Expenses = Net Income ] - Specified time PERIOD
question
Balance Sheet (equation)
answer
- [ Assets = Liabilities + Equity ] - For a specific DATE
question
Retained Earnings Statement (equation)
answer
- [ Beginning Retained Earnings + Net Income - Distributions (Dividends) = Retained Earnings ] - Specified time PERIOD
question
Statement of Cash Flow (equation)
answer
- [ Cash Inflow - Cash Outflow = Net Cash Flow ] - Specified time PERIOD
question
Cash Receipt
answer
- Cash inflow
question
Cash Payment
answer
- Cash outflow
question
Assets (definition)
answer
- Anything owned
question
Liabilities (definition)
answer
- Anything owed
question
Equity (definition)
answer
- Net worth - [ Common Stock + Retained Earnings ]
question
Transaction
answer
- Economic events that require recording in the financial statements - Each transaction has a dual effect on "The Accounting Equation"
question
Operating Activity Cash Receipts
answer
- Inflow from sales, services, commissions, fees, interest income, and dividend income
question
Operating Activity Cash Payments
answer
- Outflows for inventories, salaries, operating expenses, interest paid, and taxes
question
Investing Activity Cash Receipts
answer
- Inflow from selling long term assets or marketable securities, and collecting loans
question
Investing Activity Cash Payments
answer
- Outflows for purchasing long term assets, marketable securities, lending resource
question
Financing Activity Cash Receipts
answer
- Inflow from issuing stock and borrowing money
question
Financing Activity Cash Payment
answer
- Outflows to purchase treasury stock, repay debt, and pay dividends
question
Current Assets
answer
- Assets that a company expects to use up within one year or the operating cycle, which ever is longer. - Common examples - cash - investments - receivables - inventories - prepaid expenses
question
Operating Cycle
answer
Average time from the purchase of inventory to the collection of cash from customers.
question
Current Liabilities
answer
- Obligations to pay within the next year or operating cycle, what ever is longer. - Common examples - accounts payable - salaries and wages payable - notes payable - interest payable - income taxes payable
question
Ratio Analysis
answer
- expresses the relationship among selected items of financial statement data
question
GAAP
answer
- Generally Accepted Accounting Principles - Only followed in the U.S.
question
IFRS
answer
- International Financial Reporting Standards - rest of the world
question
Accrual Accounting
answer
- Transactions occur during the period in which the event occurs. - Revenues are recognized when occurred rather than when cash is received. - Liabilities are recognized when incurred rather than when paid.
question
Liquidity
answer
- The ability to pay obligations expected to become due within the next year or operating cycle.
question
Working Capital (definition)
answer
- The difference between the amounts of current assets and current liabilities.
question
Liquidity Ratio
answer
- Measures the short-term ability to pay maturing obligations and to meet unexpected needs for cash
question
Working Capital (equation)
answer
[Working Capital = Current Assets - Current Liabilities]
question
Current Ratio (equation)
answer
[Current Ratio = Current Assets/Current Liabilities]
question
The Journal
answer
- The journal is where each transaction is recorded. - From the Journal each component of the transaction is posted to the Ledger
question
Double Entry Accounting
answer
- Every transaction must effect two or more accounts to keep the accounting equation balanced - debit one account and credit another
