Accounting Equation Flashcards
(19 cards)
What is the basic accounting equation?
Assets = Liabilities + Owners Equity
Define Assets.
Economic resources owned or controlled by a company that will provide future benefit
Examples include cash, inventory, buildings, and equipment.
What are Liabilities?
Obligations satisfied through payment or services to someone else
What does Owners Equity represent?
Investments in the company with no repayment required /
Total ownership interest in a company
What is retained earnings?
Earnings retained in the business since its founding
What is the Statement of Cash Flows?
Detailed analysis of cash going into and out of the cash account over a specific period of time
List the types of activities included in the Statement of Cash Flows.
- Operating activities
- Investing activities
- Financing activities
What are Operating Activities?
Things that happen every day in a business
What are Investing Activities?
Transactions that affect the productive capacity of a business
What are Financing Activities?
Borrowing/paying back money and selling/buying your own stock
What is Net Income?
Revenue - Expenses
Define Revenue.
Resource inflows; increase in resources from sales
What are Expenses?
Resource outflows; costs incurred
What does the Balance Sheet summarize?
Summary of past transactions and events
What is the significance of Owner’s Equity?
It encompasses the total ownership interest in a company, including retained earnings
What is the difference between Owner’s Equity and Retained Earnings?
Owner’s Equity is total ownership interest; Retained Earnings are profits reinvested into the business
Fill in the blank: The equation must be _______.
balanced
How can you think of Owner’s Equity using a lemonade stand analogy?
It’s the total amount of money you put in or earned, minus any money you owe
In the lemonade stand analogy, what are Retained Earnings?
Money saved to buy more lemons or improve the stand instead of spending it
