Chapter 1 – A Framework for Financial Accounting – Flashcards

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Describe the two primary functions of financial accounting which are
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Measure business activities and Communicate financial accounting information to outside users
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Accounting is a system of
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maintaining records of a company's operations and communicating that information to decision makers
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Create a record of activities by measuring
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Assets, Liabilities, Equity, Revenues, Expenses, & Dividends.
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Business activities
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Operating, Financing, Investing
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The Accounting Equation is
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Assets = Liabilities + Stockholders' Equity
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The income statement measures
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current revenues, expenses and profits (net Income).
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The balance Sheet measures
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assets, liabilities and stockholder's equity.
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The Statement of Stockholder's Equity is
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the activity of that section of the balance sheet
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The Statement of Cash Flow measures
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cash activities (operating, investing, financing)
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Describe the role that financial accounting plays in the decision-making process
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activities measured by accountants, then communicated to investors and creditors
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GAAP Principles
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Decision Usefulness, Relevance, Representational Faithfulness.
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Sole proprietorship
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business is owned by one person
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Partnership
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business is owned by two or more persons
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Corporation
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business is legally separate from its owners
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Financing activities
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transactions the company has with investors and creditors
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Investing activities
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transactions involving the purchase and sale of resources that provide benefit for several years
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Operating activities
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transactions that relate to the primary operations of the company
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Dividends
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are distributions to shareholders but are not an Expense!
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