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chapter 1 Flashcards

1
Q

what is accounting?

A

it identifies and records the economic events of an organization and communicates to interested users

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2
Q

who are the 2 broad users of accounting?

A

internal users
external users

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3
Q

what are the 4 external users of accounting?

A

investors
creditors
customers
governments

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4
Q

what are the 2 internal users of accounting?

A

employees
managers

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5
Q

how to investors use accounting?

A

to decided if they should invest in a company

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6
Q

how to creditors use accounting?

A

to decide if they should extend credit to a company or make a loan to a company

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7
Q

how do customers use accounting?

A

for warranty

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8
Q

how do governments use accounting?

A

for GST and corporate tax as well as making sure all source deductions are done properly (taxes taken off of paycheques)

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9
Q

how do employees use accounting?

A

to make sure the firm they work for is doing good and can continue to pay them

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10
Q

how do managers use accounting?

A

to track the performance of the company to see if they will get any performance based compensation

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11
Q

what are internal users of accounting?

A

anyone inside to company using the companies accounting

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12
Q

what are external users of accounting?

A

anyone outside the company using the companies accounting

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13
Q

what must happen for accounting information to have value?

A

the preparers of the accounting forms must have high ethical standards

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14
Q

what are the 2 things that the prepares of accounting forms must keep in mind when making the financial statements?

A

actions are legal and responsible

consider the organizations interests and need to reflect the true economic outlook of the firm

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15
Q

what is data analytics?

A

involves analyzing data using software and statistics to draw inferences

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16
Q

what are the 4 most common types of data analytics?

A

descriptive (what happened)
diagnostic (why it happened)
predictive (what is likely to happen)
prescriptive (what should we do about it)

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17
Q

what is an example of descriptive data analytics?

A

a company stating they lost 20 M in revenues

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18
Q

what is an example of diagnostic data analytics?

A

the company lost 20M in revenues due to outdated equipment

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19
Q

what is an example of predictive data analytics?

A

what will continue to happen if we use the outdated equipment

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20
Q

what is an example of prescriptive data analytics?

A

we should invest in to better equipment to stop the loss of profits

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21
Q

what are the 6 characteristics of a proprietorship?

A

owned by one person
simple to set up
owner has control over business
limited life
unlimited liability
income tax paid by owner

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22
Q

what are the 5 characteristics of a partnership?

A

owned by more than one person
formalized in a written agreement
limited life
each partner has unlimited liability
income tax paid by individual partners

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23
Q

what are the 6 characteristics pf a corporation?

A

separate legal entity owned by shareholders
indefinite life
ease of raising capital
shareholders enjoy limited liability
corporations pays income tax

may be public or private:
public of share are traded publicly
private of share are not available to public

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24
Q

what are the 3 form of business organizations?

A

proprietorship
partnership
corporation

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25
what is the generally accepted accounting principles (GAAP) for business organizations?
accounting rules for the preparation of financial statements
26
are there generally accepted accounting principles for publicly traded and private corporations?
yes
27
what rules for creating financial statements do publicly traded corporations use?
international financial reporting standards (IFRS)
28
what rules for creating financial statements do private corporations use?
they may use international financial reporting standards (IFRS) or they can use accounting standards for private enterprises (ASPE)
29
what is international financial reporting standards (IFRS)?
a standardized framework for financial statements that is used in 100 countries
30
why was the international financial reporting standards (IFRS) created?
to help allow more access to capital markets so more people in different countries could read the standardized financial statements
31
what rules do proprietorships and partnerships usually follow when creating their accounting statements?
they typically follow accounting standards for private enterprise (ASPE) for their external reporting and they are not required to follow any particular standards for internal use
32
what are the 3 types of business activities on a statement of cash flow?
financing investing operating
33
what is financing activities?
obtaining and repaying funds to finance the operations of the business
34
what are 2 examples of financing activities?
issuing or repurchasing shares (equity financing) borrowing money or repaying loans (debt financing)
35
what are the 2 kinds of financing?
equity financing debt financing
36
what are the 5 kinds of debt?
bank indebtedness bank loan payable longterm debt like mortgages bonds payable finance lease obligations
37
what is debt financing?
using debt to fund operations
38
what is equity financing?
issuing shares to fund operations
39
what are investing activities?
purchase or sale of long-lived assets needed to operate
40
what are 2 examples of investing activities?
purchase or sale of long lived assets such as property, plant and equipment and intangible assets purchase or sale of investments such as shares or debt securities of other companies
41
what are long lived assets?
assess that will benefit you for more than a year
42
what are operating activities?
the main day-to-day activities of the business
43
what are 3 examples of operating activities?
sources of income (revenue and income) expenses related accounts such as accounts receivable and accounts payable
44
what are the 4 kinds of financial statements?
statement of income statement if changes in equity statement of financial position statement of cashflows
45
what is the statement of income?
reports reveries and expenses for a specific time period
46
what does the statement of income measure?
it measures the profitability of a company for a certain time period not the cash of that company
47
what are 2 other terms for a statement of income?
profit and loss statement of earnings
48
what is the statement of changes in equity?
it reports the changes in each component of shareholders equity during a period of time
49
what are the 2 components of shareholders equity?
contributed capital (the sale of shares) retained earnings ( the earnings that the owners can keep)
50
what is the statement of financial position?
shows the assets, liabilities and shareholders equity at a specific point in time
51
what is another term for the statement of financial position?
balance sheet
52
what is the equation for the statement of financial position?
assets= liabilities+shareholders equity
53
what is the statement of cash flows?
shows, for a specific period of time (typically 12 months), how a company obtained cash and how that cash was used
54
what is order of preparation for the 4 financial statements?
1) statement of income 2) statement of changes in equity 3) statement of financial position 4) statement of cash flows
55
what the the 3 things on statement of income?
revenues expenses net income
56
what are revenues?
arise from the sale of products or services and result in an inflow of assets
57
what are expenses?
costs of assets consumed or services used to generate revenues
58
what is net income?
net income/loss= revenues-expenses
59
what are the 5 things on the statement of changes in equity?
share capital retained earnings/deficit other shareholders accounts changes in common shares changes in retained earnings
60
what is share capital?
amounts contributed by shareholders and may include common and preferred share classes
61
what are retained earnings/ deficit?
cumulative net income retained in the corporation minus any dividends paid to shareholders
62
what is changes in common shares?
common shares at the beginning of the period+ common shares issued - common shares repurchased= common shares at the end of the period
63
what is changes in retained earnings?
retained earnings at beginnings of period+ net income/loss - dividends declared= retained earnings at end of period
64
what are the 3 things on a statement of financial position?
assets liabilities shareholders equity
65
what are assets?
resources owned or controlled by a business
66
what are liabilities?
claims of a lender and other creditors
67
what is shareholders equity?
claims of shareholders
68
what is the accounting equation?
assets= liabilities+ shareholders equity
69
what is the income sheet equation?
revenue- profit= net income
70
does corporation following IFRS need to produce a statement of changes in shareholders equity?
yes they do
71
does a corporation following ASPE need to make a changes a shareholders equity?
no they do not, they have to make a statement of retained earnings
72
how would a statement of retained earnings be made?
beg. retained income+ net income - dividends =end. retained earnings
73
what is the statement of cash flows?
it reports the effect on the corporations cash related to operating, investing and financing activities and show net increase or decrease in cash for the period
74
are the different financial statements interrelated?
yes, results from some statements are used as data in other statements
75
what are some examples of financial statements being intertwined?
net income from statement of income is reported in statement of changes in equity endings balances of each shareholders equity account is reported in both statements of financial position and changes in equity statement of cash flows is related to statement of financial position
76
what must public corporations produce every year?
an annual report
77
what are the 6 things an annual report contains?
audited financial statements statements of management responsibility for the financial statements management discussion and analysis and strategy going forward auditors report done by a third party to get a sense of how the company is doing notes to financial statements historical summary of the key financial ratios and infdicators
78
what are the accounting standards between IFRS and ASPE?
IFRS: publically traded corporations must use IFRS; private corporations normally use ASPE but can choose to use IFRS ASPE: private corporations normally use ASPE but can choose to use IFRS. once the choice is made, it must be applied consistently
79
what accounting rules do proprietorships and partnerships generally follow?
accounting standards for private enterprise (ASPE)
80
what determines if a corporation has to produce a statement of changes in equity or a statement of retained earnings?
if they follow IFRS they have to produce a statement of changes in equity, if they follow ASPE they have to produce a statement of retained earnings
81
what is the difference between a statement of retained earnings and a statement of changes in equity?
statement of changes in equity: shows the changes in all components of shareholders equity (share capital and retained earnings) statement of retained earnings: show the change in only one component of shareholders equity (retained earnings)

financial accounting (12 decks)

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