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Finance and Accounting > Exam 1 > Flashcards

Exam 1 Flashcards

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1
Q

why does accounting matter

A

accounting is the language of business
global economic systems depend on reliable and accurate financial reporting
it is a technical skill above just typical business knowledge
warren buffet has said it is the most important topic in business schools

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2
Q

what is accounting

A

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

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3
Q

what are internal users

A

people within the business such as management or employees that use the information to make decisions such as whether or not to pursue a project

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4
Q

what are the primary external users

A

investors and creditors

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5
Q

what are some non primary external users

A

tax authorities, regulatory agencies, customers, labour unions, economic planners, communities, suppliers

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6
Q

what makes accounting behaviour ethical

A

actions need to be legal and responsible
actions should consider the organizations interest

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7
Q

what is a proprietorship

A

you are the sole owner of a business and the income is in your name and included in your own personal income taxes

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8
Q

what are the characteristics of a proprietorship

A

simple to set up
owner has control
unlimited liability
income is included in individuals tax return

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9
Q

what is a partnership

A

similar to proprietorship but owned by more than one person

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10
Q

what is a corporation

A

a company operating as a separate legal entity owned by shareholders

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11
Q

what are the characteristics of a corporation

A

indefinite life
shareholders have limited liability
may be public or private
separate legal entity with it’s own tax return
corporations have their own credit scores

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12
Q

how doe new corporations get loans early on

A

often shareholders give a personal guarantee meaning they are putting up their own assets to secure the loan

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13
Q

what is a manufacturing business

A

uses raw materials, components, and parts to assemble finished goods

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14
Q

what is a merchandise business

A

sells goods to customers

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15
Q

what is a service business

A

performs tasks for the benefit of customers

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16
Q

what are financing activities

A

obtaining and repaying funds to finance the operations of the business through either debt or equity financing

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17
Q

what are investing activities

A

obtaining the resources or equipment needed to operate the business for the longterm

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18
Q

what are operating activities

A

main day to day activities of the business that generate revenues and expenses

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19
Q

what are financial statements

A

the business documents that companies use to report the results of their activities to various groups

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20
Q

what are the statements under ASPE

A

income statement, statement of retained earnings, balance sheet, cash flow statement

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21
Q

what are the statements under IFRS

A

statements of income, statement of changes in equity, statement of financial position, statement of cashflows

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22
Q

what is the statement of income

A

reports the results of operations for a specific period of time by showing revenues and working down through all associated expenses to a final net income after tax

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23
Q

what are revenues and expenses

A

revenues arise from the sale of a product or service in regular operations
expenses are the cost of assets consumed or services used to generate revenue

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24
Q

what are gains and losses

A

extra income or expenses arising from one time events that are not int he course of regular operations

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25
what is the formula for net income
revenue + gains - expenses - losses
26
what is the statement of changes in equity
shows changes in each component of shareholders equity for a period
27
what is share capital and retained earnings
share capital is the amount contributed by shareholders and can be common or preferred class retained earnings is the cumulative profit retained in the company minus any dividends paid to shareholders
28
what is the statement of financial position
shows the resources owned by a business(assets), the obligations a business owes(liabilities), and the shareholders equity in the business
29
what is the statement of cashflows
reports the cash inflows and outflows over a period of time to reconcile net income to the actual change in cash
30
what is the accounting equation
assets = liabilities + shareholders equity economic resources = claims on economic resources
31
what are the components of retained earnings
previous retained earnings + net income - dividends paid = new retained earnings
32
what are generally accepted accounting principals
rules and practices for the preparation of financial statements
33
what is the top down pyramid of the conceptual framework for financial reporting
objectives of reporting(why we report) qualities of accounting info and elements of info principles used to apply the framework
34
what is the objective of financial reporting
providing info that is both useful and decision relevant for allocation of resources allow people to determine how managers are performing(management stewardship)
35
what are the fundamental qualitative characteristics of accounting information
info must be both relevant and representationally faithful
36
what is relevance
the info makes a difference in decision making, has predictive and confirmatory value, includes all material info
37
what is representational faithfulness
the info is complete, neutral, free from material error, substance over form meaning it shows the economic side of a transaction not the legal side
38
what are the enhancing characteristics
comparability, verifiability, timeliness, understandability
39
what are the elements of financial statments
assets, liabilities, equity, revenues, expenses, gains, losses
40
what are the characteristics of assets
involve some economic benefit to the entity entity has control over that benefit result from a past transaction or event
41
what are the characteristics of liabilties
represent a present duty or responsibility entity is obligated and has little to no discretion to avoid the duty or responsibility obligation results from a past transaction or event
42
what is equity
represents the residual interest in assets after all liabilities are deducted
43
what are the foundational principles in the recognition or derecognition category
economic entity assumption, control assumption, revenue recognition principle, matching principle
44
what are the foundational principles in the measurement category
periodicity, monetary unit assumption, going concern assumption, historical cost principle, fair value principle
45
what is the foundational principle in the presentation or disclosure category
full disclosure principle
46
what is recognition and derecognition
including or removing an item from a financial statement
47
what is the economic entity assumption
you have to separate business and personal activity in reporting
48
what is the control assumption
if two firms are controlled by the same party then their statements are consolidated
49
what is the revenue recognition principle
revenue is recognized when earned and risks or rewards have been transferred to purchaser
50
what is the matching principle
expenses need to be recorded in the same period as the revenue they helped to earn
51
what is the periodicity assumption
economic activity can be divided into artificial time periods
52
what is the monetary unit assumption
money is used to measure economic transactions as it is assumed currency is stable year over year meaning inflation can be ignored
53
what is the going concern asumption
we have to assume the business is going to continue to operate into the foreseeable future
54
what is the historical cost assumption
certain elements are recorded at the cost of purchase
55
what is the fair value assumption
certain assets are recorded at market value
56
what is the full disclosure principle
anything relevant to users decisions should be disclosed in the financial statements, the notes to the statements, or the MD&A
57
what is accrual accounting
recording both cash and non cash transactions such as recording revenue as they are earned not as cash is exchanged
58
what are the main profitability ratios
EPS, P/E, gross profit
59
what are the main liquidity ratios
working capital, current ratio
60
what are the main solvency ratios
debt to total assets
61
what are the main classifications of financial ratios
profitability, liquidity, solvency
62
what are the main intangible assets
goodwill, patents, copyrights, trademarks, trade names, licenses
63
what are the steps in the accounting cycle
analyze transaction, journalize, post, trial balance, adjusting entries, adjusted trial balance, financial statements, closing entries, post closing trial balance
64
what are debits and credits
the left and right side of T accounts
65
what is included in a journal entry
date, account being debited, account being credited, description of transaction, column for debits and credits, a reference number
66
what is a compound entry
a transaction affecting three or more accounts
67
what order are accounts listed on the chart of accounts
assets, liabilities, equity, revenues, expenses
68
what is the numbering system for accounts
1000-2999 for assets, 3000-3999 for liabilities, 4000-4999 for equity, 500-6999 for revenues, 7000-9999 for expenses
69
what are some mistakes that will still let the trial balance balance
a transaction is not journalized, a correct journal entry is not posted, a journal entry is posted twice, incorrect amounts used in journalizing or posting, errors that cancel each others effects are made during recording
70
what is outlined in a partnership agreement
formation, partner contributions, distribution of income and losses, provisions for withdrawal of assets, dispute resolution, partnership liquidation,
71
where can the financial info for public corps be found`
system for electronic data analysis and retrieval(SEDAR)
72
what are some reasons a private corp would choose to use IFRS
it is considering using public debt or equity markets in the future, it wants to be able to compare financial results with competitors that use IFRS, it has foreign subsidiaries using IFRS and wants common acccounting standards
73
when was the first conceptual framework issued
1976
74
what is fraudulent financial reporting
accountants are using the statements to portray something that is not there
75
what is financial engineering
legally restructuring a business arrangement or transaction so it meets the company's reporting objective
76
what is a cost constraint
when the cost of developing proper financial statements outweighs the benefits to users
77
what are the six main entities businesses exchanges with
customers, government agencies, sources of equity capital, sources of debt capital, suppliers or vendors, employees
78
what is the reporting entity concept
similar to the economic entity assumption is means that business and personal activities must be separate in financial reporting. personal transactions should not be on business reports
79
what is external vs internal financing
external financing is borrowing money or issuing shares internal financing is reinvesting retained earnings into the business
80
what is an operating line of credit
a predetermined amount of money a business can borrow from and repay as they need. using this creates bank indebtness
81
how is the statement of changes in equity and the statement of retained earnings different
statement of changes in equity is required under IFRS and shows all elements of shareholders equity where SRE is required under ASPE and just shows changes in retained earnings
82
what are the non-financial sections of an annual report
companies mission, goals and objectives, products, people
83
what are the financial sections of an annual report
MD&A, financial statements, notes to the financial statements, auditors report, statement of management responsibility for financial statements, historical summary of key ratios and indicators
84
what is adverse selection
when sellers have info that buyers do not have
85
what is a moral hazard
when a party gets involved in a risky event knowing they are protected against the risk and the other party will incur the loss
86
what are tradeoffs in qualitative characteristics
when one characteristic must be given up to achieve another
87
what are constructive and equitable obligations
constructive obligations arise from past or present practices that signal the company acknowledge a potential economic burden equitable obligations arise due to moral or ethical considerations
88
what factors lead something to be recognized on the statements
the info meets the definition of an element the event or transaction is probable the info is reliably measurable
89
what concepts define control under IFRS
parent must have power over invested parent must have exposure or right to variable returns from involvement with investee must be able to use the power over investee to affect amount of investors returns
90
how is control defined under ASPE
the continuing power to determine strategic decisions without the co-operation of others
91
what are product and period costs
product costs are things like material or freight in that are carried into the future as inventory if the product is not sold period costs are things like salaries and admin expenses that are recognized immediately as they are not seen as part of the production process
92
what are the 5 IFRS steps for recognizing a transaction has occured
identify the contract with the customer identify the performance obligations in the contract determine the transaction price allocate the transaction price to each performance obligation recognize revenue when each performance obligation is satisfied
93
what is the main issue with GAAP
principles can be too flexible allowing for differences in accounting methods across companies and over time
94
what is an operating cycle
average amount of time it takes a company to pay cash for products or services then receive cash from customers for their products or services
95

Finance and Accounting (3 decks)

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