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Financial Statements Man is the measure of all things; of that which is, that it is; of that which is not, that it is not.-Protagoras 3.1 Accounting and Financial Statement The method of accounting universally used in business today is known as ______ accounting, in which events are accounted for even if cash does not change hands.
Financial Statements Man is the measure of all things; of that which is, that it is; of that which is not, that it is not.-Protagoras 3.1 Accounting and Financial Statement The method of accounting universally used in business today is known as ______ accounting, in which events are accounted for even if cash does not change hands.
accrual
Cash accounting, in which transactions are recognized only when ______ is exchanged.
Cash accounting, in which transactions are recognized only when ______ is exchanged.
cash
The process of accounting records these transactions and records what has been gotten and what has been given up to get it, what flows in and what ______ out.
The process of accounting records these transactions and records what has been gotten and what has been given up to get it, what flows in and what ______ out.
flows
In business, accounting journals and ledgers are set up to record transactions as they ______.
In business, accounting journals and ledgers are set up to record transactions as they ______.
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Periodically, the transaction information is summarized in financial statements so it can be read most ______.
Periodically, the transaction information is summarized in financial statements so it can be read most ______.
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Income Statement The income statement summarizes incomes and expenses for a ______ of time.
Income Statement The income statement summarizes incomes and expenses for a ______ of time.
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The cash flows from income and expenses are ______ cash flows, or cash flows that are a consequence of earning income or paying for the costs of earning income.
The cash flows from income and expenses are ______ cash flows, or cash flows that are a consequence of earning income or paying for the costs of earning income.
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The loan repayments are cash flows from financing assets or investments that will increase ______.
The loan repayments are cash flows from financing assets or investments that will increase ______.
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Free cash flow is the cash available to make investments or financing decisions after taking care of operations and debt obligations. It is calculated as cash flow from operations less ______ repayments.
Free cash flow is the cash available to make investments or financing decisions after taking care of operations and debt obligations. It is calculated as cash flow from operations less ______ repayments.
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The most significant difference between the three categories of cash flows—______, investing, or financing—is whether or not the cash flows may be expected to recur regularly.
The most significant difference between the three categories of cash flows—______, investing, or financing—is whether or not the cash flows may be expected to recur regularly.
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The accounting equation is as absolute as the law of gravity. It simply must always be true, because if there are assets, they must have been financed somehow—either through ______ or equity.
The accounting equation is as absolute as the law of gravity. It simply must always be true, because if there are assets, they must have been financed somehow—either through ______ or equity.
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Assets = Liabilities + Equity. Net Worth: The difference between what you have and what you owe is your ______.
Assets = Liabilities + Equity. Net Worth: The difference between what you have and what you owe is your ______.
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Study Notes
Accounting and Financial Statement
- Accrual accounting is the method universally used in business today, where events are accounted for even if cash does not change hands.
- Cash accounting is another method, where transactions are recognized only when cash is exchanged.
The Accounting Process
- The accounting process records transactions and tracks what has been gained and what has been given up to get it, including inflows and outflows.
- In business, journals and ledgers are used to record transactions as they happen.
- In personal finance, a checkbook records most transactions, with statements from banks or investment accounts providing records of the rest.
- Transaction information is periodically summarized in financial statements.
Financial Statements
Income Statement
- The income statement summarizes incomes and expenses for a period of time.
Cash Flow Statement
- The cash flow statement shows how much cash came in and where it came from, and how much cash went out and where it went over a period of time.
- Cash flows from income and expenses are operating cash flows, or cash flows that are a consequence of earning income or paying for the costs of earning income.
- Free cash flow is the cash available to make investments or financing decisions after taking care of operations and debt obligations.
- It is calculated as cash flow from operations less debt repayments.
Balance Sheet
- The balance sheet is a critical piece in assessing the current situation, often referred to as the “statement of financial condition.”
- The balance sheet is a snapshot of what you have and what you owe at a given point in time.
- It is a list of assets, debts or liabilities, and equity or net worth, with their values.
Accounting Equation
- The accounting equation is Assets = Liabilities + Equity, which is always true because assets must have been financed somehow—either through debt or equity.
- Net Worth is the difference between what you have and what you owe.
Key Concepts
- Operating cash flows are cash flows that are a consequence of earning income or paying for the costs of earning income.
- Financing cash flows are cash flows from financing assets or investments that will increase income.
- Investing cash flows are cash flows related to the purchase or sale of assets.
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Description
Test your knowledge on accounting principles, financial statements, and the accounting process. Explore topics such as accrual accounting, cash accounting, and recording transactions.
