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BSAD.221 - Introductory Financial Accounting > Midterm 1 - Review > Flashcards

Midterm 1 - Review Flashcards

(75 cards)

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1
Q

what is the purpose of financial accounting?

A

to provide useful info to external users such as investors, creditors, and regulatory bodies for decision-making

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2
Q

what are the key financial statements?

A
  • income statement
  • statement of changes in equity
  • balance sheet (statement of financial position)
  • statement of cash flows
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3
Q

what is an income statement?

A

reports on revenue, expenses, and profit over a specific period

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4
Q

what is a statement of changes in equity?

A

shows changes in shareholders’ equity, including share capital and retained earnings

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5
Q

what is a balance sheet/statement of financial position?

A

displays the company’s assets, liabilities, and shareholders’ equity at a specific point in time

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6
Q

what is a statement of cash flows?

A

details cash inflows and outflows from operating, investing, and financing activities

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7
Q

what does GAAP stand for?

A

generally accepted accounting principles

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8
Q

what is GAAP?

A

rules and guidelines for preparing financial statements

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9
Q

what does IFRS stand for?

A

international financial reporting standards

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10
Q

what is IFRS?

A

standards required for public companies in Canada

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11
Q

what does ASPE stand for?

A

accounting standards for private enterprises

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12
Q

what is ASPE?

A

simplified accounting standards that can be used by private companies

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13
Q

who are the external users of financial information?

A
  • investors
  • creditors
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14
Q

what do investors use financial information for?

A

use financial data to decide whether to buy or sell shares

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15
Q

what do creditors use financial information for?

A

to evaluate a company’s ability to repay debt

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16
Q

what is the fundamental accounting equation?

A

ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY

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17
Q

what are assets?

A

resources owned by the company

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18
Q

what are some examples of assets?

A

cash, inventory, equipment

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19
Q

what are liabilities?

A

obligations or debts owed by the company

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20
Q

what are some examples of liabilities?

A

loans, accounts payable

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21
Q

what is shareholders’ equity?

A

owners’ claim after liabilities (includes share capital and retained earnings)

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22
Q

what are the types of business organizations?

A
  • sole proprietorship
  • partnership
  • corporation
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23
Q

what is a sole proprietorship?

A

single owner, personal liability

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24
Q

what is a partnership?

A

two or more owners, shared profits and liabilities

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25
26
27
what is a corporation?
separate legal entity, limited liability, can issue shares
28
what are the key accounting concepts?
- revenue recognition principle - matching principle - historical cost principle - accrual basis accounting
29
what is the revenue recognition principle?
revenue is recorded when earned, not necessarily when cash is received
30
what is the matching principle?
expenses should be matched with revenues in the period they help generate
31
what is the historical cost principle?
assets are recorded at their original purchase price
32
what is accrual basis accounting?
revenue and expenses are recorded when earned or incurred regardless of cash flow
33
what is a transaction?
any event that affects the company's financial position and is measurable in monetary terms (eg. buying supplies, paying wages, selling goods)
34
what do transactions impact?
- assets - liabilities - equity - revenue - expenses
35
what is the expanded accounting equation?
ASSETS = LIABILITIES + (SHARE CAPITAL + RETAINED EARNINGS)
36
what are retained earnings?
reflect accumulated profits minus dividends
37
what is the equation for retained earnings?
RETAINED EARNINGS = REVENUES - EXPENSES - DIVIDENDS
38
what are the different types of accounts?
- assets - liabilities - equity - revenue - expenses
39
what are the steps for analyzing transactions?
1. use source documents to identify the accounts involved 2. determine whether each account is increasing vs decreasing and whether to debit vs credit the accounts
40
what are some examples of source documents?
invoices, receipts
41
how do debits impact accounts?
increase: assets, expenses decrease: liabilities, equity
42
how do credits impact accounts?
increase: liabilities, equity, revenue decrease: assets
43
what does a debit transaction increase?
assets and expenses
44
what does a credit transaction increase?
liabilities, equity and revenue
45
what does a debit transaction decrease?
liabilities and equity
46
what does a credit transaction decrease?
assets
47
where are transactions recorded?
in the general journal as journal entries
48
what is the general journal?
where transactions are recorded as journal entries
49
what happens to journal entries after they are recorded in the general journal?
they are posted to the general ledger
50
what is the general ledger?
where journal entries are posted after they are recorded - each account has its own record showing the cumulative effect of transactions
51
what are the characteristics of double-entry accounting?
- each transaction affects at least two accounts (ensuring a balanced equation) - for every debit, there is an equal and opposite credit
52
what are the steps in the accounting cycle?
1. analyze transactions 2. record journal entries 3. post to the ledger 4. prepare a trial balance to check that debts equal credits 5. make adjusting entries at period-end 6. prepare adjusted trial balance 7. prepare financial statements 8. close temporary accounts (revenues, expenses, dividends)
53
what are the temporary accounts?
- revenues - expenses - dividends
54
what are adjusting entries?
adjustments made to an account for transactions not yet recorded, to ensure that revenues are in the correct period
55
what are prepaid expenses?
an expense that allocates over time (eg. insurance)
56
what are accrued revenues/expenses?
revenues earned or expenses incurred, but not yet recorded
57
what is depreciation?
systematic allocation of the cost of a long-term asset
58
what are some reasons for adjusting entries?
- prepaid expenses - accrued revenues/expenses - depreciation
59
what is closing entries?
at year end, temporary accounts are closed to retained earnings to reset their balances for the new period
60
what is cash?
includes currency, coins, cheques, and bank account balances
61
what are the forms of cash management?
- separation of duties - bank reconciliations
62
what is separation of duties?
a form of cash management - different employees handle cash, record transactions, and reconcile bank statements
63
what is bank reconciliation?
compare the company's cash records with the bank statement to identify discrepancies
64
what are some common reconciling items?
- outstanding cheques - deposits in transit - bank fees - errors
65
what are outstanding cheques?
cheques written but not yet cleared by the bank
66
what are deposits in transit?
deposits made but not yet recorded by the bank
67
what are bank fees?
service charges deducted by the bank but not recorded by the company
68
what are errors?
mistakes in recording transactions in either the company's or the bank's records
69
what are accounts receivable?
amounts owed by customers for goods or services provided on credit
70
what is revenue recognition?
accounts receivable is recognized when goods/services are delivered, even if payment is later
71
what is a bad debt expense?
accounts receivable that are never collected
72
what is the allowance method?
1. estimate uncollectible amounts at the end of the period 2. record bad debts expense and adjust allowance for doubtful accounts
73
what is the allowance for doubtful accounts?
a contra-asset that reduces accounts receivable
74
what is the receivables turnover ratio?
- measures how efficiently a company collects its receivables --> lower ratio indicates collection problems
75
what is the equation for the receivables turnover ratio?
RECEIVABLES TURNOVER = NET CREDIT SALES / AVERAGE ACCOUNTS RECEIVABLE

BSAD.221 - Introductory Financial Accounting (1 decks)

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