Financial accounting

The full disclosure principle

A company must report the details behind financial statements that would impact user's decisions.

The process of financial accounting

Analyze,Record,post journal,prepare statements

A balance sheet includes the totals for

Assets = liabilities + equity. Total Liabilities and equity should match the total for assets.

The accounting equations

Assets=Liabilities+equity

What is on the statement of cash flows?

Cash flows from operating activities, cash from investing activities, cash from financing activities, net increase in cash, cash balance from the month.

In order to make the assets accounts normal

Debit for increases

Financial accounting is governed by concepts and rules know as

Generally acceptable accounting principles

what is the statement of cash flows?

Identifies cash inflows and cash outflows over a period of time.

Accounting is a system that _____ , _____, ______ information that is ______, _______, _______, about an organization's business activities.

Identifies, records, communicates, relevant, reliable, comparable.

Order the financial statements

Income statement, statement of retained earnings, balance sheet, statement of cash flows.

What does IASB stand for?

International accounting standards board

The building blocks of analysis

Liquidity,solvency,profitability,Market prospects

The chart of accounts is a

List of all ledger accounts and includes an identification number assigned to each account.

Internal users are:

Managers, officers, internal auditors, sales staff, budget officers, controllers.

Companies that experience seasonal variations in sales often choose a ____ end, when their sales activities are at the lowest. (Wal-mart, target, Macy's usually end their reporting year on January 31st.

Natural business year

The FASB framework consists broadly of what four parts?

Objective, Qualitative characteristics, Elements, Recognition and Measurement.

The fraud triangle is a model that includes what components for an individual to commit fraud in an accounting environment. What are the three?

Opportunity, Pressure (or incentive), and Rationalization

What is on the statement of retained earnings?

Retained earnings + net income - dividends = end retained earnings.

The revenue recognition principle

Revenue is the amount received from selling products and services. To recognize, means to record it. Revenue is recognized when earned. (2) proceeds from selling products and services need not be in cash. (3) Revenue is measured by the cash received plus the cash value of any other items received.

The income statement includes:

Revenue minus expenses= net income

What is on a income statement?

Revenues, Expenses, net income or loss.

The time period assumption

The life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

The expense recognition principle or the matching principle

a company record the expenses it incurred to generate the revenue reported.

A balance sheet describes:

a company's financial position at a point in time.

The incomes statement describes a

a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.

A note payable

a formal promise to pay a future amount of the money loaned.

The collection of all accounts and their balances for an information system is called

a ledger or general ledger

The chart of accounts is:

a list of all accounts and includes an identifying number for each account.

A fiscal year is

a twelve month period that a company may choose to use based on the beginning of operations. A fiscal year consist of any 12 consecutive month period. Furthermore, it is acceptable to adopt an annual reporting period.

The measurement or cost principle

accounting information is based on actual cost. Cost is measured on a cash or equal-to-cash basis.

The going concern assumption

accounting information reflects a presumption that the business will continue to operate instead of being closed or sold.

Investing activities are the:

acquiring and disposing of assets that an organization uses to acquire and sell its products or services.

What is made at the end of accounting period to reflect a transaction or event that is not yet recorded

adjusting entry

Accrued liabilities are

amounts owed that are not yet paid. (wages payable, taxes payable, and interest payable)

The time period assumption states that

an organization's activities can be divided into specific time periods.

The analyzing and recording process in order is:

analyze, record in journal, post journal in ledger accounts, prepare and analyze the trial balance.

The extended accounting equation

asset=liability+equity (+common stock-dividends+revenues-expenses)

Prepaid accounts are considered

assets

A double entry account requires that

at least two accounts are involved with one debit and one credit, The total amount debited must equal the total amount credited, The accounting equation must not be violated.

Unclassified balance sheet

broadly groups accounts into assets,liabilities, and equity

A corporation

can have 1 or more owners, has business taxes, can have limited liability, is a business entity, is a legal entity, has unlimited life.

Five examples of current assets are:

cash, accounts receivable, inventory, marketable securities, prepaid expenses.

The ledger is a:

collection of all accounts for an information system.

The right side of a T-account is

credit

To increase a liability you must

credit

To increase revenues you must

credit

To increase stock you must

credit

to increase equity you must

credit

In order to make equity accounts normal

credit for increases

In order to make liabilities accounts normal

credit for increases

Liabilities

creditors claims on assets.

current ratio is calculated by

current assets/current liabilities

The left side of a T-account is

debit

To increase assets you must

debit

To increase dividends you must

debit

To increase expenses you must

debit

Expenses ____ equity

decrease

Expenses

decrease earnings and are cost of assets or services used to earn revenue. (employee pay, use of supplies,advertising,utilities...etc).

When a company pays any cash dividends it

decreases assets and total equity. Dividends are not expenses. They are the opposite of owner investments.

What is a balance sheets?

describes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time.

What is a income statement?

describes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.

Prepaid accounts represent future

expenses (they become expenses when the service is given)

What is a statement of retained earnings?

explains changes in equity from net income (or loss) and from any dividends over a period of time.

Every company uses a

general journal

A source document

identify and describe transactions and events entering the accounting process.

The guideline for ethical decisions states that we take what three steps?

identify ethical concerns, analyze options, make the ethical decision.

Revenue

increase retained earnings and are resources from a company's earnings activities. (sales of products, facilities rented, consulting services provided...etc.)

Revenue ____ equity

increases

4 non current assets are:

investments, property, equipment and intangible assets.

Cash basis accounting (is or is not) consistent with generally accepted accounting principles (US. GAPP and IFRS).

is not

External users are

lenders, shareholders, government consumer groups, external auditors and customers.

What are the two basic constraints on financial reporting?

materiality constraint, the cost-benefit constraint

Financing activities are:

means organizations use to pay for resources such as land, buildings, equipment to carry out plans.

Return on assets is calculated by

net income/ average total assets.

Profit margin is calculated by

net income/net sales

Three examples of current liabilities are

office supplies, rent, insurance (covered within the year)

A sole proprietorship

one owner is allowed, a business entity, has unlimited liability.

Interim financial statements include

one, three, and six months

The materiality constraint

only information that would influence the decisions of a reasonable person need be disclosed.

The cost-benefit constraint

only information with benefits of disclosure greater than the costs of providing it need be disclosed.

Classified balance sheet

organizes assets and liabilities into subgroups that have similar attributes. w

There are two types of financing in accounting, they are _____ and_____.

owner and non owners

Equity

owners claim on assets.

Common stock

part of contributed capital, is the amount that stockholders invest in the company.

Assets

resources a company owns or controls.

The revenue recognition principle

revenue is to be recorded when earned, not before and not after.

Which two accounting principals are used when adjusting financial statements

revenue recognition and expense recognition (matching)

The statement of retained earnings helps to:

see the money that is staying within a given business after dividends are paid. The statement of retained earnings focuses on a specific point in time.

The classified balance sheet

separates both assets and liabilities into current and noncurrent. Current assets will be realized in cash, sold, or consumed during the operating cycle or within one year. Current liabilities must be satisfied within the next cycle or within one year if the cycle is shorter than one year.

The statement of cash flows helps to:

summarize a company's operating, investing, and financial activities for a given period or cycle. Investing activities and financing activities are both present on the statement of cash flows.

A journal entry includes

the date of the transaction, titles of affected accounts, dollar amount of each debit and credit, an explanation of the transaction.

Dividends

the distribution of assets to stockholders. (reduce retained earnings).

What is all on the balance sheet?

the left side is cash, supplies, and equipment. The right side is any and all liabilities. Under the liabilities is company equity. Assets=Liability+equity

The income statement summarizes......

the results of operations of an entity for a period of time.

Debt ratio is calculated by

total liabilities/total assets

A partnership

unlimited liability to the owners, but can have limited. LP,LLP,LLC.

The monetary unit assumption

we can express transactions and events in monetary, or money, units.

What is unearned revenue?

when you receive cash prior to service. Remains a liability until service is given. In which case it become revenue and cash.