Questions and Answers
What is accounting?
Recording of day-to-day financial activities of a company and the organization of that information into summary reports used to evaluate the company's financial status.
What are the three primary financial statements in financial accounting?
The Balance Sheet, The Income Statement, The Statement of Cash Flows.
What is a Balance Sheet?
A financial statement that reports assets, liabilities, and owner's equity on a specific date.
What is an Income Statement?
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What is the Statement of Cash Flows?
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Who are the users of financial accounting?
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What does FASB stand for?
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What does SEC stand for?
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What is AICPA?
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What are the three factors that make right now a time of significant change in accounting?
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What is the purpose of financial statements?
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What is included in a Balance Sheet?
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What do Notes to the Financial Statements provide?
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What is an External Audit Report?
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What does relevant information mean?
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What does reliable information represent?
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What is comparability in accounting?
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What is conservatism in accounting?
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What is materiality in accounting?
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What are current assets?
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What are the most common current assets?
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What are long-term assets?
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What are the most common long-term assets?
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What are intangible assets?
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What is the first item in a U.S. balance sheet?
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How long do companies usually provide balance sheets for?
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What is recognition in accounting?
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What is the accounting equation?
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Study Notes
Accounting Fundamentals
- Accounting involves recording daily financial transactions and organizing this data into reports for evaluating a company's financial health.
- The three primary financial statements are the Balance Sheet, Income Statement, and Statement of Cash Flows.
Financial Statements Breakdown
- Balance Sheet: Displays a company’s assets, liabilities, and owner's equity at a specific date.
- Income Statement: Summarizes revenue and expenses over a fiscal period, calculating net income by subtracting expenses from revenues.
- Statement of Cash Flows: Documents cash inflows and outflows categorized into operating, investing, and financing activities.
Users of Financial Accounting
- Key users include lenders, investors, management, suppliers, customers, employees, competitors, government entities, and media.
Regulatory Bodies and Standards
- FASB (Financial Accounting Standards Board): Establishes accounting standards in the United States.
- SEC (Securities and Exchange Commission): Oversees and regulates U.S. stock exchanges.
- AICPA (American Institute of Certified Public Accountants): A professional organization for certified public accountants in the U.S.
Contemporary Changes in Accounting
- Significant changes stem from globalization of accounting standards, advancements in information technology, and reactions to accounting scandals alongside legislation like the Sarbanes-Oxley Act of 2001.
Importance of Financial Statements
- Financial statements enhance available financial information, aiding in attracting stakeholders like investors and lenders.
Components of the Balance Sheet
- Reflects financial position detailing assets, liabilities, and owner's equity at a point in time, typically starting with cash in U.S. formats.
- Companies often present balance sheets for at least two years in a comparative format.
Additional Financial Concepts
- Notes to the Financial Statements: Offer crucial insights into accounting assumptions and additional information beyond standard statements.
- External Audit Report: Conducted by independent accountants to enhance the credibility of financial statements.
Key Terminology
- Relevant Information: Timely data aiding in past assessments and future projections.
- Reliable Information: Accurately reflects what it represents.
- Comparability: Ensures that accounting information can be compared across different companies.
- Conservatism: In accounting, it means recognizing losses promptly while deferring recognition of gains until confirmed.
- Materiality: Evaluates whether a certain dollar amount impacts financial decisions.
Asset Classifications
- Current Assets: Include cash and resources expected to be converted to cash or consumed within one year (e.g., cash, accounts receivable, inventory).
- Long-term Assets: Used for business operations for more than one year, commonly including property, plant, and equipment.
- Intangible Assets: Purchasable intangibles are reported, but self-developed intangibles are generally not.
Recognition in Accounting
- Recognition condenses estimates into a singular figure reported in financial statements.
- The accounting equation is expressed as Assets = Liabilities + Owner's Equity, foundational for understanding the balance sheet.
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Description
This quiz features flashcards focused on key accounting concepts relevant to the WGU MBA C213 course. Test your knowledge on essential financial statements, the definition of accounting, and other important terms. Perfect for reinforcing your understanding of accounting principles.