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Questions and Answers
What does the statement of changes in equity primarily report?
What does the statement of changes in equity primarily report?
- The total liabilities of the company
- The profits earned by the company before taxes
- Changes in a company's equity from opening to closing balance (correct)
- The cash inflows from operating activities
What increases the capital accounts in an equity statement?
What increases the capital accounts in an equity statement?
- Distribution of assets to owners
- Withdrawals by the owner
- Owner investment of cash or other assets (correct)
- Net loss
What is par value in relation to capital stock?
What is par value in relation to capital stock?
- The maximum price at which stocks can be sold
- The total value of all outstanding shares
- The market value of the issued shares
- The minimum price at which stocks can be issued to shareholders (correct)
Which statement accurately describes a partnership?
Which statement accurately describes a partnership?
Which of the following is a form of equity accounts in a corporation?
Which of the following is a form of equity accounts in a corporation?
Which action would decrease the equity in a company?
Which action would decrease the equity in a company?
What is the main characteristic of a corporation?
What is the main characteristic of a corporation?
What does 'Additional Paid-In Capital' reflect in a corporation?
What does 'Additional Paid-In Capital' reflect in a corporation?
Which of the following is considered a cash inflow from investment activities?
Which of the following is considered a cash inflow from investment activities?
What type of cash flow is represented by payments for taxes?
What type of cash flow is represented by payments for taxes?
Which of the following describes a cash outflow in financing activities?
Which of the following describes a cash outflow in financing activities?
Which cash flow activity involves collecting loans and disposing of investments?
Which cash flow activity involves collecting loans and disposing of investments?
What is an example of cash inflow from operating activities?
What is an example of cash inflow from operating activities?
What is reported as Additional Paid-In Capital?
What is reported as Additional Paid-In Capital?
What constitutes cash flows from Operating Activities?
What constitutes cash flows from Operating Activities?
Which of the following best describes Retained Earnings?
Which of the following best describes Retained Earnings?
Which of the following would NOT be classified under cash inflows in the Statement of Cash Flows?
Which of the following would NOT be classified under cash inflows in the Statement of Cash Flows?
Dividends can be described as which of the following?
Dividends can be described as which of the following?
What is the purpose of a Cash Flow Statement?
What is the purpose of a Cash Flow Statement?
Which type of cash flow includes royalties and commissions?
Which type of cash flow includes royalties and commissions?
What is meant by cash transactions being included in the Cash Flow Statement?
What is meant by cash transactions being included in the Cash Flow Statement?
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Study Notes
Statement of Changes in Equity
- Necessary to have multiple capital accounts equal to the number of partners in a partnership.
- Shows changes in company equity from opening to end-period balance.
- Changes include earned profits, dividends, equity inflow, equity withdrawal, and net losses.
- Equity increases with net income and owner investment.
- Equity decreases due to net loss and owner withdrawals.
Corporation Definition
- A corporation is a legally recognized entity authorized by the state, acting as a single unit for legal purposes.
Equity Accounts
- Capital Stock: Represents the par value of issued common shares; par value is the minimum price for issuing stocks.
- Additional Paid-In Capital: Recorded when stocks are issued above par value; reflects the excess of the issue price over par.
- Retained Earnings: Undistributed earnings retained within the corporation; can be reduced by dividends, akin to owner’s drawings in sole proprietorships.
Sole Proprietorship
- A sole proprietorship is owned by one individual who retains all profits and is personally liable for debts.
Partnership
- Composed of two or more partners pooling resources to share profits.
- Profit division relies on partnership agreements among owners.
Statement of Cash Flows
- Summarizes cash inflows and outflows over a period, reflecting changes in cash balance and categorizing activities as operating, investing, or financing.
Cash Flows from Operating Activities
- Encompasses cash transactions from providing services and delivering goods, impacting profit determination.
- Cash Inflows: Receipts from sales and services, royalties, and fees.
- Cash Outflows: Payments to suppliers, employees, taxes, interest, and operating expenses.
Cash Flows from Investing Activities
- Involves transactions related to buying and selling long-term assets and investments.
- Cash Inflows: Receipts from sales of assets and collections on long-term receivables.
- Cash Outflows: Payments for acquiring assets and investments in securities.
Cash Flows from Financing Activities
- Involves raising capital from owners and creditors.
- Cash Inflows: Receipts from owner investments.
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