ACCT 220 - Introduction to Financial Accounting

Flashcards based on Accounting Lecture Notes

What is the definition of an accounting system?

A system that collects and processes financial data about an organization's business activities and reports it to decision-makers.

Who are the external decision-makers that rely on financial accounting information?

Investors and Creditors

Who are the internal decision-makers that rely on managerial accounting information?

Managers

What is a key characteristic of a corporation?

It is a separate legal entity from its owners.

What type of liability do owners (stockholders/shareholders) of a corporation have?

Limited liability; the most they can lose is their initial investment.

What is the Business Entity Concept?

The organization for which financial data is collected is called an accounting entity; for corporations, the business entity itself (not the owners) is viewed as owning the resources it uses and owing its debts.

Who are the residual claimants of a firm?

Stockholders/Shareholders

In cases of bankruptcy, who receives money first, creditors or shareholders?

Creditors

What are the three main types of business activities?

Operating Activities, Investing Activities, and Financing Activities

What are Operating Activities?

Activities related to the day-to-day operations that earn income for the firm.

What are Investing Activities?

Buying or selling of long-term assets (typically property, plant, and equipment).

What are Financing Activities?

Activities related to the financing of the company itself (receipt or payment of money to investors and creditors except suppliers) as well as dividends.

Name the four basic financial statements.

Balance Sheet, Income Statement, Statement of Shareholders’ Equity, and Statement of Cash Flows

What does the Balance Sheet report?

The financial position of the firm at a specific point in time.

What does the Income Statement report?

The firm's ability to sell goods for more than their cost to produce and sell over a period of time.

What does the Statement of Shareholders’ Equity report?

Additional contributions or payments to investors and the amount of income the company reinvests for future growth, over a period of time.

What does the Statement of Cash Flows report?

The firm’s ability to generate cash and how it was used over a period of time.

What is the order assets are stated on a balance sheet?

From most liquid (easiest to convert to cash) on top to least liquid on the bottom.

Give examples of common types of assets.

Cash, Accounts Receivable, Inventory, Property/Plant/Equipment (PPE), and Land

What is the order liabilities are stated on a balance sheet?

From closest to maturity (repayment due relatively soon) on top to furthest from maturity on the bottom.

Give examples of common types of liabilities.

Accounts Payable, Notes Payable

What are the two key components of Stockholder's Equity?

Contributed Capital and Retained Earnings

What are the two sub-components of Contributed Capital?

Common Stock and Additional Paid-In Capital (APIC)

Write out the Basic Accounting Equation.

Assets = Liabilities + Stockholder's Equity

What is included in the heading of a statement of stockholder's equity?

The Name of Entity, Title of Statement (Statement of Stockholder’s Equity), Accounting Period, and Unit of Measure

What is the Basic Income Statement Equation?

Revenue - Expenses= Net Income

What are the categories of cash flows?

Operating Activities (CFO), Investing Activities (CFI), and Financing Activities (CFF)

What is the primary objective of financial reporting to external users based on FASB's conceptual framework?

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity

What are the characteristics of useful information according to the conceptual framework?

Relevant, Material, and a Faithful Representation

State the four Recognition and Measurement Assumptions.

Separate Entity Assumption, Going Concern Assumption, and Stable Monetary Unit

What organization determines GAAP?

Financial Accounting Standards Board (FASB)