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Acc Basics
| Question | Answer |
|---|---|
| Why is Accounting important? | -Measures Business activities -Processes information into reports -Communicates results to decision makers |
| Who are the decision makers? | External and internal decision makers |
| What do internal decision makers ask? | How much money should the business budget for production? Should the business expand to a new location? How do actual costs compare to budget costs? |
| What do external decision makers ask? | Should I invest into the business? Is the business profitable? Should we lend money to the business? Can the business pay me back? |
| Which accounting provides information to external decision makers? | Financial accounting |
| Which accounting provides information to internal decision makers? | Managerial accounting |
| What are the accounting guidelines called? | GAAP |
| What is faithful representation in accounting information? | Information should be relevant, neutral and free from error |
| What is the IFRS? | International Financial Reporting Standards which is a set of global accounting guidelines |
| What is the economic entity assumption? | An organization that stands apart as a separate economic unit |
| An economic entity can be... | -Sole proprietorship -Partnership -Corporation -Limited-Liability Company LLC |
| What are the organizations and rules that govern accounting? | -Cost principle -Going concern assumption -Monetary unit assumption |
| Cost Principle | States that acquired assets and services should be recorded at their actual cost. |
| Going concern assumption | Requires that items on the financial statements be measured in terms of monetary unit |
| What is the accounting equation? (Definition) | Basic tool of accounting, measuring the tool of accounting, measuring the resource of the business and the claim of those sources |
| What is the accounting equation? (Actual equation) | Assets=Liability+Equity |
| What is an asset? | An economic resource that is expected to benefit the business of the future. |
| What are some example of an asset? | -Cash -Merchandise -Furniture -Land |
| What is a liability? | Debts that are owed to creditors -They usually have the word payable in their titles |
| What are some examples of a liability? | -Accounts payable -Notes payable -Salaries payable |
| What is equity? | The owner's claims to the assets of the business, it's also known as stockholder equity |
| What are the two components of equity | Contributed capital & retained earnings |
| What is contributed capital | -Also called paid-in capital, aka the amount invested by owners |
| What is common stock? | Represents the basic ownership of every corporation |
| What is retained earnings? | Equity earned from profitable operations that is not distributed to shareholders |
| What makes equity increase? | Contributed capital (owner contributions) Revenues, which are the amounts earned from delivering goods or services to customers |
| What makes equity decreases? | Dividends and expenses |
| What is dividends? | Distribution of earnings to stockholders |
| What is expenses? | The costs of selling goods or services |
| What is a transaction? | Any event that affects the financial position of the business and can be measured with faithful representation |
| What are the steps of analyzing a transaction? | 1.) Identify accounts and account type 2.) Decide if each account increases or decreases 3.) Determine if the accounting equation is in balance |
| What does "on account" mean? | A promise to pay for goods or services later |
| What are the different types of financial statements? | -Income statements -Balance sheet -Statement of cash flows |
| What is a financial statement? | Business documents that are used to communicate information needed to make business decisions |
| What is an income statement? | Reports net income and net loss of a business from a specific time period |
| What is the statement of retained earnings? | Reports how the company's retained earnings balance changed from the beginning to end of the period |
| What is the balance sheet? | Reports on assets, liabilities, and stockholder's equity of a specific date |
| What is statement of cash flows? | Reports on business's cash receipts and payments for a specific time period |
| What is ROA? | Return on assets. Measures how profitably a company uses assets |
Created by:
user-1988123