Ch1 Flashcards
(37 cards)
Financial Accounting
- Focuses on reporting to external stakeholders, like investors and creditors
- Uses a standardized accounting language to communicate financial information.
- Accounting cycle
- Using key financial statements
key financial statements
○ Income Statement: Reports a company’s performance over a period of time.
○ Balance Sheet: Reports a company’s financial position at a point in time.
○ Statement of Stockholders’ Equity: Shows changes in equity over a period.
○ Statement of Cash Flows: Tracks the movement of cash.
Managerial Accounting
○ Focuses on providing information for internal decision-making
○ Concepts:
- Cost behavior: How costs change with different activity levels.
- Cost-Volume-Profit (CVP) analysis: Understanding the relationship between costs, volume, and profit.
- Relevant Costing: Focusing on costs that are relevant to specific decisions.
- Product Costing: Assigning costs to products
Income Statement
Reports on a company’s performance over a period of time and
lists amounts for
* Its top line revenues (also called sales) and
* Its expenses.
* Revenues less expenses equals the bottom-line net income
amount (also called profit or earnings).
What content does the income statement include?
● Revenue, sales, turnover (RE)
● Cost of sales, cost of good sold (COGS)
- Gross profit/margin = RE - COGS
● Operating expenses, selling, general, and administrative expenses (SG&A)
● Operating income = gross profit - operating expenses
● Other expenses
● Net income = Revenue - all expenses
What is the main formula for the balance sheet?
● Assets = Liabilities + equity
● Assets = Liabilities + Common stock - Dividends + Revenue - Expenses
What categories of assets and liabilities are available?
- Current (<1year)
- Non-Current (>1year)
How do you calculate retained earnings?
● Ending retained earning = beginning retained earnings + net income - dividends
What are the five major accounts?
● Assets, equities, liabilities, revenues, and expenses
6 assets
○ Cash
○ Accounts receivable
○ Inventory
○ Equipment
○ Prepaid insurance
○ Accumulated depreciation
3 liabilities
○ Accounts payable
○ Unearned revenue
○ Notes payable
2 equities
○ Common stock
○ Retained earnings
2 revenues
○ Sales revenue
○ Interest income
7 expenses
○ Rent
○ Wages
○ Advertising
○ Insurance
○ Interest
○ Depreciation
○ Cost of goods sold
Assets: Credit/Debit
Decrease: Credit
Increase: Debit
Expenses: Credit/Debit
Decrease: Credit
Increase: Debit
Liabilities: Credit/Debit
Increase: Credit
Decrease: Debit
Equity: Credit/Debit
Increase: Credit
Decrease: Debit
Revenue: Credit/Debit
Increase: Credit
Decrease: Debit
T-Account
Accounting Cycle
Journaly entry (ex. Loan)
Journal entry (selling for cash)
Journaly entry (selling on account)
