Accounting 1 Flashcards

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.