Untitled Flashcards Set

Types of business organizations

Includes sole proprietorships, partnerships, corporations, and hybrids, each having specific formation processes, characteristics, advantages, and disadvantages.

Users of financial information

Individuals or entities that utilize financial data to make decisions, including investors, creditors, and management.

Account receivable

An amount owed to a business by its customers for goods or services delivered but not yet paid for.

Categories of business activities

Include operating activities, investing activities, and financing activities, each encompassing specific operations related to the business.

Basic formulas for financial statements

Include the income statement formula: Revenues - Expenses = Net Income; the balance sheet equation: Assets = Liabilities + Equity; and cash flow statement calculations.

Characteristics of financial statements

Four main types: income statement, balance sheet, cash flow statement, and statement of changes in equity, each providing different insights into the financial health of a business.

Classified balance sheet format

Summarizes a company's assets, liabilities, and equity in a structured manner that distinguishes current and long-term items.

Current vs. long-term assets and liabilities

Current assets and liabilities are expected to be liquidated or settled within one year, whereas long-term assets and liabilities are held or due beyond one year.

Accounting equation

Assets = Liabilities + Equity, which must always be in balance according to accounting rules.

Categories of financial ratios

Include liquidity ratios, profitability ratios, and solvency ratios, each providing different financial insights.

T-account

A graphical representation of individual accounts, with debits on the left side and credits on the right side.

Accounts with debit balances

Typically include assets and expenses, while accounts with credit balances usually include liabilities, revenue, and equity.

Journal entries

Records of transactions in the accounting system, illustrating debits and credits that impact various accounts.

Corporation paying a dividend

Results in a distribution of profits to shareholders, reducing retained earnings on the balance sheet.

Effects of transactions on cash account

Transactions can increase or decrease cash based on whether they involve cash inflows or outflows.

First three steps in accounting process

1. Identify transactions; 2. Record transactions in journals; 3. Post entries to ledger accounts.