Finance Chapter 1 Quiz

Key Financial Concepts

• Revenue: Total earnings generated by a business from its operations.
• Expenses: The costs incurred in the process of generating revenue.
• Assets: Resources owned by a company that provide future economic benefits.
• Liabilities: Obligations or debts that a company owes to outsiders.
• Stockholder's Equity: The residual interest in the assets of a company after deducting liabilities, often referred to as net worth.
• Dividend: A portion of a company's earnings distributed to shareholders.

Financial Statements and Their Purpose

• Financial Position: Evaluated through the Balance Sheet, which shows the equation Assets = Liabilities + Equity.
• Performance: Assessed using the Income Statement, with the equation Revenue - Expenses = Net Income.
• Dividends: Information found in the Statement of Retained Earnings, which tracks total dividends paid to shareholders.

Cash Reference

• Accountants refer to the money in a bank account as Cash.

Asset and Liability Examples

• Current Asset Accounts:
  • Cash
  • Accounts Receivable
• Long-Term Asset Account:
  • Property, Plant, and Equipment (PP&E)
• Current Liability Account:
  • Accounts Payable
• Long-Term Liability Account:
  • Long-Term Debt
• Equity Accounts:
  • Common Stock
  • Retained Earnings
• Revenue Account Example:
  • Sales Revenue
• Expense Accounts:
  • Cost of Goods Sold (COGS)
  • Operating Expenses

Additional Notes

• Balance Sheet accounts include a comprehensive list that may consist of various asset, liability, and equity accounts.