Questions and Answers
What two concerns of investors and creditors are summarized by the term 'cash flow prospects'?
Return of investment and return on investment.
What are the three financial statements used to communicate financial accounting information to interested external parties?
Balance sheet, income statement, and statement of cash flow.
What is an accounting system?
The personnel, procedures, devices, and records used by an entity to develop accounting information and communicate this information to decision-makers.
Who are external users of accounting information?
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What are the three basic financial statements we will study in this course?
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What is the balance sheet often referred to as?
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What is often referred to as the statement of operations?
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What does the income statement measure?
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Who are some examples of internal users of accounting information?
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What are the characteristics of management accounting information?
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What is the most authoritative source of generally accepted accounting principles (GAAP)?
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What does financial accounting describe?
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What is management accounting?
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What is tax accounting?
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Who are investors?
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Who are creditors?
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What are the primary financial statements?
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What does the income statement show?
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What does the balance sheet describe?
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What does the statement of cash flows show?
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What principles support cost as the basis for asset valuation?
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What do liabilities represent?
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What does owners' equity represent?
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What is a proprietorship?
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What is a partnership?
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What is a corporation?
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What are the two major concerns creditors and investors have about a company's operations and financial position?
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What is an account?
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Study Notes
Investor and Creditor Concerns
- Cash flow prospects summarize investor and creditor concerns regarding return of investment and return of investment.
Financial Statements
- The three key financial statements are the balance sheet, income statement, and statement of cash flows.
- The balance sheet, also known as the statement of financial position, details a business's resources and claims against those resources.
- The income statement, sometimes referred to as the statement of operations, measures revenues earned and expenses incurred over a specific timeframe.
- The statement of cash flows illustrates how a company receives and spends its cash.
Accounting System
- An accounting system encompasses personnel, procedures, devices, and records that facilitate the development and communication of accounting information to decision-makers.
External vs. Internal Users
- External users of accounting information are individuals and organizations with a financial interest in a business but not involved in its daily operations, including owners, creditors, potential investors, and the general public.
- Internal users include board members, executives, and managers who rely on accounting data for operational decision-making.
Management Accounting
- Characteristics of management accounting information include:
- Timeliness and relevance.
- Focus on efficiency and effectiveness.
- Orientation towards future planning.
Accounting Principles
- Generally Accepted Accounting Principles (GAAP) are primarily provided by the Financial Accounting Standards Board (FASB).
- Key principles include:
- Historical cost principle for asset valuation.
- Going-concern assumption regarding future operations.
- Objectivity principle ensuring unbiased reporting.
- Stable-dollar assumption focused on monetary expression.
Liabilities and Equity
- Liabilities highlight the claims of creditors on a business's assets, including accounts payable and wages payable.
- Owner's equity represents the owners' claims on business assets, influenced by investments, withdrawals, and retained earnings.
Business Structures
- A proprietorship is a business owned by a single individual.
- A partnership is owned by two or more individuals, potentially involving many partners.
- A corporation is owned by shareholders who generally do not engage in everyday operations.
Financial Health Concerns
- Creditors and investors focus on liquidity and profitability. A company must manage to pay bills promptly (liquidity) and generate long-term profit (profitability) to maintain their confidence.
Accounting Records
- An account records individual increases and decreases in financial transactions, akin to a checkbook, with the complete set of accounts referred to as the ledger.
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Description
Test your knowledge of key accounting concepts with these flashcards. This quiz covers essential topics such as cash flow prospects and financial statements, crucial for investors and creditors. Perfect for students in an introductory accounting course.