Accounting Information and Financial Statements

Vocabulary flashcards based on lecture notes covering the basic financial statements, the three questions (3Ps) of accounting, user groups, and qualitative characteristics of information.

Statement of financial position

A financial statement that provides information on assets, equity, and liabilities to show the state of wealth of the business on a particular date; also known as the Balance Sheet.

Income statement

A financial statement that details the revenue generated and expenses to show the profit or loss achieved over a period; also known as the Profit and Loss Account.

Statement of cash flows

A financial statement that shows how much cash is available to the business over a period to assess its prospect in staying in business.

Position of accumulated wealth

One of the 3Ps of accounting that asks: What is the state of wealth of the business on a particular date?

Performance in creating wealth

One of the 3Ps of accounting that asks: How has the business been in creating wealth over a period?

Prospect in staying in business

One of the 3Ps of accounting that asks: How much cash is available to the business over a period?

Loan covenants

Requirements imposed by lenders that require a borrower to stay within acceptable limits; financial statements may provide evidence these conditions are being met.

Relevance

A fundamental qualitative characteristic of accounting information according to the Conceptual Framework.

Faithful representation

A fundamental qualitative characteristic of accounting information according to the Conceptual Framework.

Comparability

An enhancing qualitative characteristic of accounting information identified in the Conceptual Framework.

Verifiability

An enhancing qualitative characteristic of accounting information identified in the Conceptual Framework.

Timelines

An enhancing qualitative characteristic of accounting information identified in the Conceptual Framework.

Understandability

An enhancing qualitative characteristic of accounting information identified in the Conceptual Framework.

Management (as users)

Internal users who need information on company performance, variance of budgets to actuals, and share performance.

Investors

Current and potential owners who assessment management performance, profitability, and dividends to decide whether to buy or sell shares.

Employees

Users who assess stability, profitability, ability to provide remuneration and retirement benefits, and future management plans for employment levels.

Lenders

Users who assess the economic stability and vulnerability of the borrower, risk of default, and whether loans and interest will be repaid when due.

Suppliers

Users who need information to decide whether to sell to an entity and if they will be paid when due.

Customers

Users interested in an entity's ability to continue operating, availability of goods/services, prices, and product details.

Government (as users)

Users who regulate entity activities, assess taxation based on business profits, and provide a basis for national income and economic statistics.

Public

Users who use financial statements for information about trends in the prosperity of the entity and the range of its activities.