8 Questions
What does the term 'depreciation' refer to in accounting?
Allocation of the cost of an asset over its useful life
Which financial statement provides a snapshot of a company's financial position at a specific point in time?
Balance sheet
Which accounting principle dictates that expenses should be recorded in the same period as the related revenues they help to generate?
Matching principle
What is the purpose of a cash flow statement in financial accounting?
The purpose of a cash flow statement is to show how changes in balance sheet accounts and income affect cash and cash equivalents, and to analyze the flow of cash in and out of the business.
How does the cash flow statement help in determining the short-term viability of a company?
The cash flow statement helps in determining the short-term viability of a company by assessing its ability to pay bills and cover immediate expenses.
Which International Accounting Standard deals with cash flow statements?
International Accounting Standard 7 (IAS 7) deals with cash flow statements.
Who are the people and groups interested in cash flow statements?
People and groups interested in cash flow statements include accounting personnel, potential lenders or creditors, and potential investors.
What are the three activities that the analysis in a cash flow statement is broken down into?
The analysis in a cash flow statement is broken down into operating, investing, and financing activities.
Study Notes
Depreciation and Accounting Principles
- Depreciation refers to the allocation of the cost of a tangible asset over its useful life.
Financial Statements
- A balance sheet provides a snapshot of a company's financial position at a specific point in time.
Accounting Principles
- The matching principle dictates that expenses should be recorded in the same period as the related revenues they help to generate.
Cash Flow Statement
- The purpose of a cash flow statement is to provide information about a company's inflows and outflows of cash and cash equivalents.
- The cash flow statement helps in determining the short-term viability of a company by showing its ability to pay its debts and fund its investments.
International Accounting Standard
- International Accounting Standard 7 (IAS 7) deals with cash flow statements.
Users of Cash Flow Statements
- The people and groups interested in cash flow statements include investors, creditors, and other stakeholders who want to evaluate a company's ability to generate cash and meet its financial obligations.
Cash Flow Statement Analysis
- The analysis in a cash flow statement is broken down into three activities: operating activities, investing activities, and financing activities.
Test your knowledge of accountancy with this quiz on financial statements and accounting principles. Learn about the financial statement that provides a snapshot of a company's financial position at a specific point in time, the concept of 'depreciation' in accounting, and the accounting principle that dictates the recording of expenses in the same period as the related revenues they help to generate.
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