Chapter 1- Accounting Fundamentals Flashcards
What does the ALOE acronym stand for?
The accounting equation
Assets = Liabilities + Owner’s Equity
What are the four financial statements?
Income Statement
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows
What does the incomes statement tell us?
How much money the company made
What does the statement of retained earnings tell us?
How much of the money that was made was reinvested in the compnay
What does the balance statement tell us?
It lists all assets, liabilities, and owner’s equity accounts and tells the balance of each account.
What does the statement of cash flows tell us?
The inflow and outflow of a company’s cash for a given time period
What are the steps of the accounting cycles?
Collection and Analysis Journalizing the Transactions Post to General Ledger Unadjusted Trail Balance Adjustments Adjusted Trial Balance Financial Statements Close Accounts Post-Closing Trial Balance
What are assets?
What a company owns
What are liablities
what a company owes
What is Owner’s Equity
How much of a personal investment an owner has placed in something that he owns
What is GAAP
Generally Accepted Accounting Principles
What does GAAP do?
The standard by which items on the balance sheet must be reported.
What is the net income equation?
Revenue - Expenses = Net Income
What are revenues
the amount of money that a company brings in
what are expenses
the amount of money that a company pays outs
what is net income
the amount of revenue that came in once expenses have been taken out.
What is the term used to define when the amount of expenses that were paid were more than the amount of revenue that came in
Net Loss
What are activities that occur during the normal day-to-day operations of a company?
Operating Activites
What are activities that involve the purchase and sale of long-term assets as well as making or giving loans
Investing Activities
What are activities that involve cash receipts or cash payments that are a result of changes in long-term liabilities?
Financing Activities
The major reasons that the statement of cash flows is important?
- explains why changes in cash balances occurred.
- helps users jude whether or not a company can pay the people that they owe money to.
- it helps users see whether or not a company needs to borrow money to meet its debt obligation
- It helps users see why there are any differences between a company’s net income and the actual cash receipts and cash payments that a company made during a specific accounting period.
- it helps uses see why a company may experience changes in their financial position from one accounting period to the next.
What is meant by an Arm’s Length Transaction?
those were the people involved in the transactions are not personally related.
What is the term used that represented the amount of cash that you have to give up to acquire a specific item?
Cost
What is a going-concern?
the belief that a company will keep on going and going into the future.
