Accounting 1 Flashcards

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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?

Individuals and enterprises with a current or potential financial interest in the reporting enterprise, such as owners, creditors, potential investors, labor unions, governmental agencies, suppliers, customers, trade associations, and the general public. Signup and view all the answers

What are the three basic financial statements we will study in this course?

Balance sheet, income statement, and statement of cash flows. Signup and view all the answers

What is the balance sheet often referred to as?

The statement of financial position. Signup and view all the answers

What is often referred to as the statement of operations?

The income statement. Signup and view all the answers

What does the income statement measure?

The revenues earned by a company during a period of time and the expenses incurred to generate those revenues. Signup and view all the answers

Who are some examples of internal users of accounting information?

Board of directors, CEOs, CFOs, vice-presidents of information services, human resources, business unit managers, plant managers, store managers, and line supervisors. Signup and view all the answers

What are the characteristics of management accounting information?

A means to an end, timeliness, identify decision maker, measure of efficiency and effectiveness, oriented towards the future. Signup and view all the answers

What is the most authoritative source of generally accepted accounting principles (GAAP)?

The Financial Accounting Standards Board (FASB). Signup and view all the answers

What does financial accounting describe?

Information describing the financial resources, obligations, and activities of an economic entity. Signup and view all the answers

What is management accounting?

Development and interpretation of accounting information intended specifically to aid management. Signup and view all the answers

What is tax accounting?

A specialized field within the accounting profession that involves preparing income tax returns and planning business activities to minimize income tax burden. Signup and view all the answers

Who are investors?

Individuals who actually own the reporting enterprise. Signup and view all the answers

Who are creditors?

Individuals or institutions that provide resources to the enterprise in the form of credit but do not have ownership. Signup and view all the answers

What are the primary financial statements?

The balance sheet, income statement, and statement of cash flows. Signup and view all the answers

What does the income statement show?

Revenues and expenses. Signup and view all the answers

What does the balance sheet describe?

The financial position of a company at a specific point in time. Signup and view all the answers

What does the statement of cash flows show?

How the company receives and spends its cash. Signup and view all the answers

What principles support cost as the basis for asset valuation?

The cost principle, the going-concern assumption, the objectivity principle, and the stable-dollar assumption. Signup and view all the answers

What do liabilities represent?

The claims of creditors on an entity's assets. Signup and view all the answers

What does owners' equity represent?

The owners' claims on the assets of the business. Signup and view all the answers

What is a proprietorship?

A business owned by just one individual. Signup and view all the answers

What is a partnership?

A business owned by two or more individuals. Signup and view all the answers

What is a corporation?

A business owned by individuals who are not active in daily operations. Signup and view all the answers

What are the two major concerns creditors and investors have about a company's operations and financial position?

Liquidity and profitability. Signup and view all the answers

What is an account?

An individual record showing increases and decreases in the balance. Signup and view all the answers

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.