Untitled Flashcards Set

1⃣ Accounting Equation & Financial Statements

❓ Q: What is the Accounting Equation?
✅ A:

Assets=Liabilities+Stockholders’ Equity\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}Assets=Liabilities+Stockholders’ Equity

💡 Example:

• If a company has $100,000 in assets and $40,000 in liabilities, how much is Stockholders' Equity?

• Answer: $100,000 - $40,000 = $60,000

❓ Q: What are the four main financial statements?
✅ A:

1. Income Statement → Shows revenue & expenses (profitability)

2. Balance Sheet → Shows assets, liabilities, and equity at a specific time

3. Statement of Cash Flows → Shows cash inflows & outflows

4. Statement of Stockholders' Equity → Shows changes in equity (e.g., retained earnings, dividends, stock issuances)

💡 Example:

• Where would you find Net Income? Income Statement

• Where would you find Cash from Operating Activities? Statement of Cash Flows

2⃣ Accounting Definitions

❓ Q: What is an Asset?
✅ A: Resources owned by a business that provide future benefits.
💡 Examples: Cash, Accounts Receivable, Inventory, Equipment

❓ Q: What is a Liability?
✅ A: Obligations a business owes to others (debts or payables).
💡 Examples: Accounts Payable, Loans Payable, Unearned Revenue

❓ Q: What is Stockholders' Equity?
✅ A: Owner's claim on a company’s assets after liabilities are paid.
💡 Formula:

Equity=Assets−Liabilities\text{Equity} = \text{Assets} - \text{Liabilities}Equity=Assets−Liabilities

💡 Examples: Common Stock, Retained Earnings

❓ Q: What is Revenue?
✅ A: Income earned from normal business operations.
💡 Examples: Sales Revenue, Service Revenue

❓ Q: What is an Expense?
✅ A: Costs incurred to generate revenue.
💡 Examples: Rent Expense, Salaries Expense, Cost of Goods Sold

❓ Q: What is a Contra-Account?
✅ A: An account that reduces the value of a related account.
💡 Examples:

• Allowance for Doubtful Accounts (reduces Accounts Receivable)

• Accumulated Depreciation (reduces Equipment)

• Sales Returns & Allowances (reduces Revenue)

3⃣ Debits & Credits

❓ Q: How do you know if an account is debited or credited?
✅ A:

• DEBIT increases: Assets, Expenses, Dividends

• CREDIT increases: Liabilities, Revenue, Equity

💡 Example:

• Buying Equipment for $5,000 Cash

  • Dr. Equipment $5,000

  • Cr. Cash $5,000

4⃣ Journal Entries

❓ Q: What is the journal entry for purchasing supplies on credit?
✅ A:

• Dr. Supplies

• Cr. Accounts Payable

❓ Q: What is the journal entry for receiving cash from a customer for a service performed?
✅ A:

• Dr. Cash

• Cr. Service Revenue

💡 Example: A lawyer completes a $1,500 service and the customer pays immediately.
Entry:

• Dr. Cash $1,500

• Cr. Service Revenue $1,500

5⃣ Inventory & Cost of Goods Sold (COGS)

❓ Q: What is the formula for Cost of Goods Sold (COGS)?
✅ A:

COGS=Beginning Inventory+Purchases−Ending Inventory\text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory}COGS=Beginning Inventory+Purchases−Ending Inventory

💡 Example:

• Beginning Inventory = $5,000

• Purchases = $15,000

• Ending Inventory = $4,000

• COGS = $5,000 + $15,000 - $4,000 = $16,000

6⃣ Receivables & Payables

❓ Q: What is Accounts Receivable?
✅ A: Money owed to a business by customers who bought on credit.

💡 Example:

• A company provides $2,000 of services to a client on credit.
  Entry:

• Dr. Accounts Receivable $2,000

• Cr. Service Revenue $2,000

❓ Q: What is the formula for the Receivables Turnover Ratio?
✅ A:

Receivables Turnover Ratio=Net Credit SalesAverage Accounts Receivable\text{Receivables Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}}Receivables Turnover Ratio=Average Accounts ReceivableNet Credit Sales​

💡 Example:

• Net Credit Sales = $100,000

• Beginning A/R = $20,000

• Ending A/R = $30,000

• Average A/R = ($20,000 + $30,000) ÷ 2 = $25,000

• Turnover Ratio = $100,000 ÷ $25,000 = 4.0 times

7⃣ Ratios & Formulas

📌 Net Profit Margin Ratio:

Net Profit Margin=Net IncomeSales Revenue\text{Net Profit Margin} = \frac{\text{Net Income}}{\text{Sales Revenue}}Net Profit Margin=Sales RevenueNet Income​

💡 Example:

• Net Income = $20,000

• Sales Revenue = $100,000

• Net Profit Margin = 20%

📌 Current Ratio (Measures Liquidity):

Current Ratio=Current AssetsCurrent Liabilities\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}Current Ratio=Current LiabilitiesCurrent Assets​

💡 Example:

• Current Assets = $50,000

• Current Liabilities = $25,000

• Current Ratio = 2.0 (good liquidity)

📌 Inventory Turnover Ratio:

Inventory Turnover=COGSAverage Inventory\text{Inventory Turnover} = \frac{\text{COGS}}{\text{Average Inventory}}Inventory Turnover=Average InventoryCOGS​

💡 Example:

• COGS = $60,000

• Beginning Inventory = $10,000

• Ending Inventory = $20,000

• Average Inventory = ($10,000 + $20,000) ÷ 2 = $15,000

• Turnover Ratio = $60,000 ÷ $15,000 = 4.0 times

8⃣ Study Tips to Remember Everything

• Use Mnemonics → DEALER:

  • Debits = Expenses, Assets, Dividends

  • Credits = Liabilities, Equity, Revenue

• Practice Journal Entries → Write them from memory!

• Memorize Formulas → Use flashcards!

• Understand "Why" Behind Entries → Don’t just memorize—know why it works!

• Work on Example Problems