Financial Accounting
90 flashcards by MentisLibrary
Debits and credits, the three statements and how they link, accruals, depreciation, and the ratios analysts actually use. Each card shows the formula and where the number lands on a statement.
- The accounting equation
- Assets equal liabilities plus owners' equity. Every transaction keeps both sides equal.
- What is double-entry bookkeeping?
- Every transaction is recorded in at least two accounts, with total debits equal to total credits.
- What does a debit do?
- A debit increases assets, expenses, and dividends, and decreases liabilities, equity, and revenue.
- What does a credit do?
- A credit increases liabilities, equity, and revenue, and decreases assets, expenses, and dividends.
- Which accounts have a normal debit balance?
- Assets, expenses, and dividends. They increase with debits.
- Which accounts have a normal credit balance?
- Liabilities, equity, and revenue. They increase with credits.
- What is a journal entry?
- The chronological record of a transaction showing the accounts debited and credited with their amounts.
- What is a general ledger?
- The complete set of accounts where journal entries are posted and balances accumulate.
- What is a T-account?
- A simple two-column sketch of an account, debits on the left and credits on the right.
- What is a trial balance?
- A listing of every account balance to confirm total debits equal total credits before statements are prepared.
- What is a contra account?
- An account that offsets a related account and carries the opposite normal balance.
- What are the three primary financial statements?
- The income statement, the balance sheet, and the statement of cash flows.
- What does the income statement report?
- Revenues and expenses over a period of time, ending in net income or net loss.
- What does the balance sheet report?
- Assets, liabilities, and equity at a single point in time.
- What does the statement of cash flows report?
- The actual cash that moved in and out over the period, split into operating, investing, and financing activities.
- How do the three statements connect?
- Net income flows into retained earnings on the balance sheet and starts the cash flow statement; ending cash on the cash flow statement is the cash line on the balance sheet.
- What is accrual basis accounting?
- Revenue is recorded when earned and expenses when incurred, regardless of when cash changes hands.
- What is cash basis accounting?
- Revenue and expenses are recorded only when cash is received or paid.
- What is the revenue recognition principle?
- Revenue is recognized when the performance obligation is satisfied, meaning control of the good or service transfers to the customer.
- What is the matching principle?
- Expenses are recorded in the same period as the revenues they helped generate.
- What is an adjusting entry?
- An entry made at period end to record revenues earned or expenses incurred that have not yet been recorded.
- What is an accrued expense?
- An expense incurred but not yet paid or billed.
- What is accrued revenue?
- Revenue earned but not yet billed or collected.
- What is a prepaid expense?
- Cash paid in advance for a benefit to be received later, recorded as an asset until used.
- What is deferred or unearned revenue?
- Cash collected before the good or service is delivered, recorded as a liability.
- What are closing entries?
- Entries that zero out temporary accounts at year end and transfer their net effect to retained earnings.
- Temporary versus permanent accounts
- Temporary accounts measure a period and are closed each year; permanent accounts carry their balances forward.
- What are current assets?
- Assets expected to be converted to cash, sold, or consumed within one year or one operating cycle.
- What are current liabilities?
- Obligations due within one year or one operating cycle.
- What are accounts receivable?
- Amounts customers owe the company for goods or services already delivered on credit.