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14 Cards in this Set

  • Front
  • Back
Explain a Balance Sheet.
A balance sheet summarizes:
-Communicates financial performance DURING the accounting period
Explain a Statement of Retained Earnings
-shows changes in retained earnings during the accounting period
-changes are caused by
-Revenues (+)
-Expenses (-)
-Distributions of earnings to
owners, including dividends (-)
-represents the retained earnings for the entire life of the company
Explain the Statement of Cash Flows
-Explains changes in company's cash balance during a period
-where did we get cash?
-where did we spend cash?
List the factors in the conceptual framework of accounting

--Accounting Equation
What is accounting?
It identifies, measures, records, and communicates financial information.
What is a transaction?
An exchange between the business and some other economic entity.
Who is interested in financial information and why?
investors: buy or sell stock?
creditors: lend the business cash?
managers: how's the company doing?
What are assets?
-resources controlled by the business
-future economic benefits
What are Liabilites?
-obligations of the business
-claims on assets by owners
What is Equity?
-residual interest, net of liability
-claims on assets by owners
-Ownership interest in a corporation in the form of common stock or preferred stock
-Total assets minus total liabilities; here also called shareholder's equity or net worth or book value.
What are the Account Categories, and explain them.
-inflow of assets from producing goods or services
-increases equity

-outflows of assets from producing goods or services
-decreases assets
What are the assumptions of accounting, and explain them.
Monetary Unit- measure transactions in currency

Economic Entity- present the perspective of the business and keep it separate from owners

Time Period- accounting information should be released quarterly or annually

Going Concern- the business is assumed to have an indefinite life
What are the Principles of accounting, and explain them.
Revenue Recognition- recognize revenues when earned.

Note: Revenues are earned when there is agreement about the transaction, and the company's side is completed.

Matching- recognize expenses in the same period with revenues they help produce; recognize when incurred
What are the constraints of accounting, and explain them.
Materiality- "close enough"; "will it make a difference to investors?"

Conservatism- use judgments that are least likely to overstate assets and net income.