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BUS139 - Introduction To Financial Accounting > Chapter 2 Reading Notes > Flashcards

Chapter 2 Reading Notes Flashcards

1
Q

how many financial statements are there?

A

four

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2
Q

what are the four financial statements?

A

statement of stockholder’s equity
statement of financial position
statement of profit and loss
statement of cashflows

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3
Q

who are financial statements required by and who reports them?

A

required by GAAP
reported by companies

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4
Q

what does the balance sheet show?

A

assets, liabilities & equity at a single point in time

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5
Q

what does the income statement show?

A

revenue & expenses over time

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6
Q

net income = ?

A

revenue - expenses

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7
Q

what does the cash flow statement show?

A

how cash changes hands over time

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8
Q

what does the statement of stockholder’s equity show?

A

how equity has changed hands over time

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9
Q

do all companies do a statement of retained earnings?

A

no, only some do

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10
Q

retained earnings = ?

A

where all accumulated profits are stored

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11
Q

what is the flow of financial statements?

A

income statement calculates net income

net income goes into the statement of changes in equity

equity from there is put onto the balance sheet

all of those statements go into preparing the cash flow statement

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12
Q

what are the 5 account classifications?

A

asset, liability, equity, revenue, expense

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13
Q

where are assets found and what are some examples?

A

on the balance sheet

cash, PPE, inventory, A/R, land, etc.

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14
Q

where are liabilities found and what are some examples?

A

balance sheet

N/P, A/P, accrued expenses, unearned revenue

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15
Q

where is equity found and what are some examples?,

A

found on the balance sheet

common/preferred stock, APIC, retained earnings, treasury stock

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16
Q

treasury stock = ?

A

stock that the company has bought back

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17
Q

what is APIC?

A

additional paid-in capital

additional pay from an investor for a stock

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18
Q

revenue is found in the …

A

income statement

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19
Q

expenses are found in the…

A

income statement

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20
Q

what 3 questions do financial statements address?

A

what cash movements took place?

how much wealth was generated?

what is the accumulated wealth of the business at the end of the period?

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21
Q

what does the SOCF portray?

A

cash introduced (opening balance)
cash from sales (cash in)
cash paid (cash out)
closing balance

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22
Q

what question does the SOCF answer?

A

what cash movements took place

23
Q

what question does the P&L answer?

A

how much wealth was generated

24
Q

what question does the SOFP answer?

A

what is the accumulated wealth of the business

25
Q

where are profits put?

A

in retained earnings (an owner’s equity account)

26
Q

cash is described as the business’s …

A

lifeblood

27
Q

what are the 3 main financial statements and what are they referred to as?

A

SOCF, P&L, SOFP

‘final accounts’

28
Q

what are the various forms of economic benefit?

A

cash generated
cash received
value received

29
Q

what is a claim?

A

an obligation to provide cash

30
Q

what are the 2 types of claims?

A

equity (owner’s claims against assets)
liabilities (3rd parties’ claims against assets)

31
Q

what is a reporting period?

A

the timespan for which a business prepares its financial statements

32
Q

what are current/non-current assets

A

current = held short-term, intended to liquidate within 1 year

non-current = held long-term, intended for continuous use, not liquidated within 1 year

33
Q

what is an operating cycle?

A

the time between buying, preparing and selling a product

34
Q

when a transaction occurs, should I assume it’s on credit or paid by cash?

A

always assume it’s on credit unless stated otherwise

most business’s sales are made on credit except retailers

35
Q

what is the flow of a trading transaction?

A

inventory -> A/R -> cash

36
Q

what are current/non-current liabilities?

A

debt obligations expected to be settled within/longer than one year

37
Q

what happens if a business can’t fulfil long-term debts?

A

they can be forced to stop trading

38
Q

define accounting conventions

A

one of the generally accepted rules that accountants tend to follow when preparing financial statements

39
Q

what are the 5 accounting conventions?

A

business entity
historic cost
prudence
going concern
dual-aspect

40
Q

what is business entity?

A

recognising the business as a separate legal entity to its’ owners

(unless its a partnership or sole trader)

41
Q

what is historic cost?

A

value of assets must be presented at the cost at which they were bought - acquisition price

42
Q

what is prudence?

A

caution toward financial statements must be exercised at all times

43
Q

what is going concern?

A

assuming that a business will continue its operations for the foreseeable future

unless there’s reason to believe otherwise

44
Q

what is dual-aspect?

A

each transaction has 2 aspects that will impact both sides of the SOFP

45
Q

current replacement cost = ?

A

how much I would get for an asset if I were to sell it now according to its current market value

46
Q

realisable value = ?

A

price someone is willing to pay for an asset

47
Q

neutrality = ?

A

no bias

a desirable accounting characteristic

48
Q

what 3 characteristics make up faithful representation?

A

neutrality, completeness, freedom from error

49
Q

good will = ?

A

an intangible asset used to describe payment for things like good customer service, good product quality etc.

50
Q

tangible assets depreciate,
intangible assets…?

A

amortise

51
Q

fair value = ?

A

the value ascribed to an asset as an alternative to historic cost

52
Q

impairment loss = ?

A

the loss of an asset’s value as a result of fundamental changes (e.g., change in market conditions)

53
Q

what information does the SOFP provide?

A

insight into finances & how funds are deployed

basis for assessing value of the business

gauge relation between assets & claims

54
Q

carrying amount = ?

A

the difference between the cost and the accumulated depreciation related to an asset

BUS139 - Introduction To Financial Accounting (16 decks)

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