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Questions and Answers
What degree is Kaleya Langley planning to complete?
What aspect of accounting did Kaleya find interesting?
Why did Kaleya decide to take Accounting 2?
What did Kaleya learn about in her previous course, Accounting 1?
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What professional goal does Kaleya have after completing Accounting 2?
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Financial accounting involves the preparation and reporting of financial statements that provide information about a company's financial performance and position to external ______.
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The fundamental equation of a balance sheet is Assets = Liabilities + ______.
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The income statement culminates in net income or ______.
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The cash flow statement tracks the flow of cash in and out of the business through ______ activities.
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Generally Accepted Accounting Principles (GAAP) are a set of standards and guidelines for financial ______.
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The revenue recognition principle dictates when ______ should be recognized in the financial statements.
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Internal users of financial accounting, such as management, use the information for decision-making and ______ development.
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Financial statements may be audited for accuracy and compliance with accounting standards and regulatory ______.
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Study Notes
Student Introduction
- Kaleya Langley is a business administration student at SMC.
- She is taking Accounting 2 to deepen her understanding of accounting principles.
- Her prior Accounting 1 experience sparked her interest in the subject due to the mechanics of debit and credit which help understand the financial picture of a business.
- She learned about assets, liabilities, and equity in Accounting 1.
- She aims to use her knowledge of Accounting 2 to pursue professional accounting qualifications.
Overview of Financial Accounting
- Financial accounting prepares financial statements for external stakeholders, like investors and creditors.
- The goal is to accurately portray a company's financial health and provide information for decision-making.
Key Financial Statements
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Balance Sheet:
- Shows assets, liabilities, and equity at a specific point in time.
- Assets equal Liabilities plus Equity.
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Income Statement:
- Displays revenues and expenses over a period, leading to net income or loss.
- Includes revenues, COGS, operating expenses, and net income.
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Cash Flow Statement:
- Tracks cash flowing in and out of the business over a period.
- Includes operating, investing, and financing activities.
Accounting Principles
- GAAP sets standards and guidelines for financial reporting in the United States.
- IFRS aims to standardize accounting language, practices, and statements globally.
Key Concepts
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Accrual Accounting:
- Recognizes revenue when earned and expenses when incurred, regardless of cash flow.
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Revenue Recognition Principle:
- Determines when revenue should be recorded in the financial statements.
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Matching Principle:
- Matches expenses with the revenues they generate in the same accounting period.
Users of Financial Accounting
- Internal Users: Management uses financial accounting for decision-making and strategy development.
- External Users: Investors, creditors, regulatory agencies, and analysts use financial accounting to assess a company's financial health.
Reporting Frequency
- Financial statements are generally prepared quarterly and annually, following company policy and regulatory requirements.
Audit and Compliance
- Financial statements can be audited to ensure accuracy and adherence to accounting standards and regulations.
- Independent auditors add credibility to financial reports through their assessments.
Financial Ratios
- Financial ratios analyze and interpret financial statements.
- Liquidity ratios (e.g., Current Ratio and Quick Ratio) measure a company's ability to meet short-term obligations.
- Profitability ratios (e.g., Gross Margin and Net Margin) assess a company's profitability.
- Leverage ratios (e.g., Debt-to-Equity Ratio and Interest Coverage Ratio) show a company's use of debt financing.
Importance of Financial Accounting
- Provides insights into an organization's performance over time.
- Helps attract investment and secure financing.
- Sets benchmarks for operational efficiency and profitability.
Regulatory Framework
- The SEC (Securities and Exchange Commission) oversees publicly traded companies in the U.S.
- The FASB (Financial Accounting Standards Board) sets and refines GAAP.
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Description
This quiz introduces Kaleya Langley, a business administration student at SMC, and her journey into Accounting 2. With prior experience in Accounting 1, she aims to enhance her understanding of accounting principles, including the mechanics of debit and credit. This background lays the foundation for her pursuit of professional accounting qualifications.
