Untitled Quiz

Accounting Equation

• Assets are resources controlled by an entity, resulting in future economic benefits.
• Liabilities are present obligations arising from past events, requiring resource outflow.
• Capital represents the residual interest in the entity's assets after deducting liabilities.
• The equation must always balance: Assets = Liabilities + Capital

Financial Statements

• Financial statements provide a structured overview of an entity's financial position, performance, and cash flows, aiding various economic decision-makers.
• Key components include a statement of financial position (balance sheet), statement of comprehensive income, statement of changes in equity, statement of cash flows, and accompanying notes.

Statement of Comprehensive Income

• This statement shows income and expenses for a specific period.
• It can be presented as a single statement or two separate statements: one showing profit or loss components, followed by other comprehensive income components.

Income Statement

• The income statement details a company's performance over a period.
• It summarizes revenues, gains, expenses, and losses.

Statement of Financial Position (Balance Sheet)

• Shows an entity's financial position on a specific date.
• It lists assets, liabilities, and owner's equity.
• Report format presents assets, followed by liabilities, then by owner's equity.
• Account format presents assets on the left and liabilities and owner's equity on the right.

Statement of Cash Flows

• Outlines an entity's cash receipts and payments during a specific period.
• Categorizes activities into operating, investing, and financing.
• Operating activities relate to core revenue-generating operations.
• Investing activities involve acquisition and disposal of long-term assets.
• Financing activities concern acquiring funds for the entity's use.

Direct vs. Indirect Method (Cash Flow Statement)

• Direct Method: Directly tracks cash inflows and outflows from operating activities.
• Indirect Method: Starts with net income and adjusts for non-cash transactions to determine operating cash flow.