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Financial Accounting Foundations > M1 Intro To Financial Accounting > Flashcards

M1 Intro To Financial Accounting Flashcards

(93 cards)

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1
Q

What is the accounting equation?

A

Assets = Liabilities + Owners’ equity

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2
Q

Fill in the blank: A - L = _______

A

OE

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3
Q

What does a balance sheet report?

A

Assets owned by the company and the claims against those assets at a specific point in time

The balance sheet reflects the financial position of a company at a certain date.

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4
Q

What is the accounting equation represented in a balance sheet?

A

Assets = Liabilities + Owners’ equity

This equation shows the relationship between what a company owns and owes.

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5
Q

What does an income statement report?

A

How well the company performed over a specific period of time

The income statement is also known as the profit and loss statement.

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6
Q

What is the formula for calculating net income on an income statement?

A

Revenues — Expenses = Net income

This formula determines the profitability of a company during a specific period.

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7
Q

What are revenues in the context of an income statement?

A

Amounts earned from the sale of products or services

Revenues are recorded when earned, not necessarily when cash is received.

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8
Q

What does it indicate if revenues exceed expenses?

A

Net income

This indicates that the company is profitable during that period.

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9
Q

What does it indicate if expenses exceed revenues?

A

Net loss

This indicates that the company incurred losses during that period.

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10
Q

What does a retained earnings statement report?

A

The amount of the company’s income retained in the business and how much was distributed to owners over a period of time

This statement reflects the changes in retained earnings over a specific period.

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11
Q

What is the formula for calculating ending retained earnings?

A

Beginning retained earnings + Net income - Dividends = Ending retained earnings

This formula accounts for profits retained and distributions to owners.

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12
Q

What does the Statement of Cash Flows report?

A

Reports the sources and uses of a company’s cash over a period of time

It provides insights into how cash is generated and spent.

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13
Q

What are the three main categories of cash flows in the Statement of Cash Flows?

A
  • Operating activities
  • Investing activities
  • Financing activities

Each category represents different aspects of cash movement.

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14
Q

What do operating activities in the Statement of Cash Flows include?

A

Cash inflows and outflows directly related to earning income

This reflects the core business operations.

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15
Q

What do investing activities in the Statement of Cash Flows encompass?

A

Cash inflows and outflows related to purchases and sales of non-current assets

This includes transactions like buying equipment or selling property.

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16
Q

What are financing activities in the Statement of Cash Flows?

A

Cash inflows and outflows related to non-current liabilities and equity transactions

This includes activities like issuing stocks or borrowing funds.

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17
Q

Fill in the blank: Cash flows from _______ activities are directly related to earning income.

A

[Operating]

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18
Q

What is the formula for calculating net income on an income statement?

A

Revenues - Expenses = Net income

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19
Q

What is the fundamental equation represented on a balance sheet?

A

A = L + OE

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20
Q

What is the equation for calculating the increase or decrease in cash on a statement of cash flows?

A

Operating activities + Investing activities + Financing activities = Increase/Decrease in cash

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21
Q

What does an Income Statement report?

A

How well the company performed over a specific period of time

It summarizes revenues, expenses, gains, and losses to determine net income or net loss.

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22
Q

What is the formula for calculating Net Income?

A

Revenues (and Gains) - Expenses (and Losses)

This formula reflects the profitability of the company.

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23
Q

Define Revenues in the context of an Income Statement.

A

Amounts earned from the sale of products or services

It represents the primary source of income for a company.

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24
Q

What are Gains?

A

Amounts earned from peripheral/incidental transactions

These transactions are not related to the core business operations.

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25
What are Expenses?
Costs incurred to earn revenues during a period ## Footnote They are essential for the operation of the business.
26
Define Losses in financial terms.
Costs incurred for peripheral/incidental transactions ## Footnote Losses are not associated with revenues and reflect unprofitable activities.
27
What does it indicate if Revenue + Gains > Expenses + Losses?
Net income ## Footnote This means the company has earned more than it has spent.
28
What does it indicate if Expenses + Losses > Revenue + Gains?
Net loss ## Footnote This signifies that the company's expenses exceed its income.
29
What are the costs to the seller of all goods sold during the period called?
Cost of Goods Sold (Inventory expense) ## Footnote This represents the direct costs attributable to the production of the goods sold by a company.
30
What type of expenses are associated with selling products and services?
Selling Expenses ## Footnote These include costs like advertising and salaries for salespeople.
31
Give two examples of Selling Expenses.
* Advertising * Salaries for salespeople ## Footnote These costs are necessary for the promotion and sale of products.
32
What are costs that are not tied directly to a specific function called?
General and Administrative Expenses ## Footnote These expenses are necessary for the overall operation of the business.
33
Name two examples of General and Administrative Expenses.
* Rent * Utilities ## Footnote These costs support the business infrastructure but are not directly linked to production.
34
What type of expenses relate to the costs of researching and developing new products or services?
Research and Development Expenses ## Footnote These expenses are crucial for innovation and improving product offerings.
35
What do you call the costs incurred from borrowing?
Interest Expense ## Footnote This represents the cost of financing through loans and other debt.
36
What type of expenses are incurred on taxable income?
Income Taxes Expense ## Footnote This reflects the amount a company must pay in taxes based on its earnings.
37
What is classified as a financing activity on a statement of cash flows?
Cash received from owners in exchange for common stock ## Footnote Financing activities involve cash inflows and outflows from non-current liability and owners' equity transactions.
38
Which choice is incorrect regarding cash flow classifications?
Cash paid to purchase equipment is classified as an investing activity ## Footnote This is because it relates to purchases and sales of non-current assets.
39
What type of activity is cash received from customers classified as?
Operating activity ## Footnote It relates to the primary income-generating activities of the business.
40
Cash paid for advertising is classified as what type of activity?
Operating activity ## Footnote It is directly related to the revenue-generating activities of the business.
41
True or False: Cash received from owners in exchange for common stock is considered an investing activity.
False ## Footnote It is classified as a financing activity.
42
Fill in the blank: Cash paid to purchase equipment is classified as an _______.
investing activity ## Footnote This classification is due to its relation to non-current assets.
43
Fill in the blank: Cash received from customers is classified as an _______.
operating activity ## Footnote This pertains to the core income-generating activities of a business.
44
Fill in the blank: Cash paid for advertising is classified as an _______.
operating activity ## Footnote This reflects the expenses related to revenue generation.
45
What is the primary purpose of a balance sheet?
Reports assets owned by the company and the claims against those assets at a specific point in time ## Footnote A balance sheet provides a snapshot of a company's financial position at a certain date.
46
What is the accounting equation represented in a balance sheet?
Assets = Liabilities + Owners' equity ## Footnote This equation is fundamental in accounting, showing that a company's resources are financed by debts and shareholders' equity.
47
What are the two main classifications of assets and liabilities in a balance sheet?
Current and non-current ## Footnote This classification helps in understanding the liquidity and financial health of a company.
48
Define current assets.
Assets expected to convert to cash within one year ## Footnote Examples include cash, accounts receivable, prepaid expenses, and inventory.
49
List three examples of current assets.
* Cash * Accounts receivable * Inventory ## Footnote Current assets are crucial for covering short-term obligations.
50
Define current liabilities.
Obligations expected to be satisfied with current assets (within one year) ## Footnote Understanding current liabilities is essential for assessing a company's short-term financial stability.
51
List three examples of current liabilities.
* Accounts payable * Unearned revenue * Current maturities of long-term debt ## Footnote These liabilities must be managed carefully to maintain liquidity.
52
What is liquidity?
How quickly and easily an asset can be converted to cash without significantly affecting its price ## Footnote Liquidity focuses on short-term asset management and is measured by the order of accounts in terms of their liquidity.
53
What is the most liquid asset?
Cash ## Footnote Cash is considered the most liquid asset as it can be used immediately for transactions.
54
What does high liquidity indicate?
An asset can be sold quickly due to high demand and presence of buyers in the market ## Footnote High liquidity is favorable for investors looking to convert assets into cash swiftly.
55
What information does a balance sheet provide regarding solvency?
It provides information about the ability to meet long-term financial obligations ## Footnote Solvency is crucial for assessing an entity's long-term financial stability.
56
What is solvency?
The ability to meet long-term financial obligations ## Footnote Solvency focuses on long-term financial stability.
57
What does a positive owner's equity indicate?
The entity has enough assets to cover its liabilities ## Footnote Positive owner's equity is a sign of financial health.
58
How is owner's equity calculated?
A - L = OE ## Footnote Where A is assets, L is liabilities, and OE is owner's equity.
59
True or False: High liquidity means an asset can be sold quickly.
True ## Footnote High liquidity reflects the demand and availability of buyers in the market.
60
What are cash and cash equivalents?
Cash on hand, bank balances, and short-term investments that are easily convertible to cash ## Footnote Cash equivalents are typically short-term investments that are highly liquid.
61
Define accounts receivable.
Money owed to the company by others, usually for goods or services ## Footnote Accounts receivable represent a claim for payment from customers.
62
What does inventory refer to?
Items held for sale in the ordinary course of business or to be used or consumed in the production of goods to be sold ## Footnote Inventory can include raw materials, work-in-progress, and finished goods.
63
What are prepaid (or deferred) expenses?
Payments made in advance for goods or services to be received in the future ## Footnote These expenses are recorded as assets until they are utilized.
64
What does property, plant, and equipment (PP&E) refer to?
Tangible assets used in operations (not for resale) that have a useful life longer than one year ## Footnote PP&E is also known as fixed assets.
65
Define intangible assets.
Non-physical assets like patents, trademarks, and goodwill ## Footnote Intangible assets can provide competitive advantages but are not physical in nature.
66
What are long-term investments?
Investments that are not intended to be sold within the next year ## Footnote These investments are often held for strategic reasons or income generation.
67
What are liabilities?
Obligations that a company owes to outside parties ## Footnote Includes debts and other financial obligations.
68
Define Accounts Payable.
Money owed to suppliers or vendors ## Footnote Represents short-term liabilities.
69
What is Short-Term Debt?
Loans or borrowings that are due within one year ## Footnote Includes current maturities of long-term debt.
70
What are Accrued Liabilities?
Expenses that have been incurred but not yet paid ## Footnote Example includes salaries payable.
71
Define Unearned (or Deferred) Revenue.
Money received in advance for services or products to be delivered in the future ## Footnote Represents a liability until the service or product is delivered.
72
What is Long-Term Debt?
Loans and borrowings that are not due within the next year ## Footnote Often represented by notes payable.
73
What does Common Stock represent?
Ownership in the company; may include par value of the shares ## Footnote Common stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
74
What are Retained Earnings?
Cumulative earnings of the company that have not been distributed to shareholders as dividends ## Footnote Retained earnings are an important component of stockholders' equity and reflect the company's ability to reinvest profits back into the business.
75
Fill in the blank: Stockholders' Equity includes Common Stock and _______.
Retained Earnings
76
True or False: Common Stock may include the par value of the shares.
True
77
What is the purpose of Stockholders' Equity?
To represent the ownership interest of shareholders in the company ## Footnote Stockholders' equity is a crucial part of a company's balance sheet and indicates the net worth of the company from the shareholders' perspective.
78
What does the Statement of Cash Flows report?
The sources and uses of a company's cash over a period of time ## Footnote It reconciles the beginning and ending cash balance from the balance sheet.
79
What are the three main categories of cash flows in the Statement of Cash Flows?
* Operating activities * Investing activities * Financing activities
80
What do operating activities in cash flow involve?
Cash inflows and outflows directly related to earning income ## Footnote Examples include selling products and collecting receivables.
81
What do investing activities in cash flow pertain to?
Cash inflows and outflows related to purchases and sales of non-current assets ## Footnote This includes purchasing long-term assets or investments for cash.
82
What do financing activities in cash flow consist of?
Cash inflows and outflows related to non-current liabilities and equity transactions ## Footnote Examples include borrowing funds and issuing common or preferred stock.
83
Fill in the blank: Cash flow from operating activities is abbreviated as _______.
CFO
84
Fill in the blank: Cash flow from investing activities is abbreviated as _______.
CFI
85
Fill in the blank: Cash flow from financing activities is abbreviated as _______.
CFF
86
What are examples of cash inflows from operating activities?
* Selling products * Collecting receivables * Collecting interest on an investment * Collecting dividends on an investment
87
What are examples of cash outflows from operating activities?
* Purchasing inventory * Paying vendors * Paying taxes
88
What are examples of cash inflows from investing activities?
* Selling long-term assets or investments * Collecting interest on an investment
89
What are examples of cash outflows from investing activities?
* Purchasing long-term assets or investments * Purchasing/selling trading securities
90
What are examples of cash inflows from financing activities?
* Borrowing funds * Issuing common or preferred stock
91
What are examples of cash outflows from financing activities?
* Paying interest on debt * Paying principal on debt * Paying dividends on common or preferred stock * Repurchasing stock
92
True or False: Depreciation, amortization, or depletion are included in cash outflows from operating activities.
False
93
What is the primary purpose of the Statement of Cash Flows?
To provide a detailed account of cash inflows and outflows over a specific period

Financial Accounting Foundations (1 decks)

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