financial accounting

• The balance sheet presents the​ company's assets,​ liabilities, and​ shareholders' equity as of a specific date. It follows the

  accounting equation.

  The first step in preparing any financial statement is to prepare a

  properly-formatted heading.
• What is the relationship between net income and owner's equity?

  Net income contributes to a company’s assets and can affect the owner’s equity.
• How does a profit affect owner's equity?

  If a company generates a profit and retains a portion, the owner’s equity rises; if costs exceed profit, it decreases.
• What can increase shareholders' equity?

  Shareholders' equity can increase if the owner invests more money into the business.
• What happens to shareholders' equity when the owner withdraws money from the business?

  Shareholders' equity decreases if the owner takes money out of the business.
• What is the formula for equity?

  Equity = revenues – expenses - dividends.
• What are examples of assets and liabilities?

  • Assets: cash, accounts receivable, inventory, land
  • Liabilities: accounts payable
• How is inventory classified in accounting?

  Inventory is classified as an asset.
• What is retained earnings classified as?

  Retained earnings are classified as equity.
• How is accounts payable classified?

  Accounts payable are classified as a liability.
• What is the accounting equation?

  Total assets = liabilities + shareholders’ equity.
• How do you calculate an increase of 15% in total assets?

  Total assets + (total assets * 0.15).
• How is shareholders' equity calculated?

  Shareholders’ equity = assets – liabilities.
• What is the formula for equity at the end of a period?

  Equity at the end = equity at the beginning + net income – dividends.
• What are the characteristics of a partnership?

  • Owned by two or more people
  • Flow-through taxation
  • More flexibility
  • Greater exposure to risk
• What defines a proprietorship?

  • Owned by one individual
  • Unincorporated
  • Least financial and legal protection for the owner
• What are the key features of a corporation?

  • Separate legal entity created by shareholders
  • Protects owners from personal liability for debts
  • Provides the least protection for bankers and creditors
• What does accounts receivable represent?

  Accounts receivable represents the amount a company expects to collect from customers.
• How is sales revenue classified?

  Sales revenue is classified as equity.
• What are the main financial statements in accounting?

  1. Statement of retained earnings

  2. Balance sheet

  3. Income statement

  4. Statement of cash flows
• What does the statement of retained earnings show?

  The statement of retained earnings shows how much earnings a company has accumulated and kept since inception.
• What does a balance sheet report?

  The balance sheet reports a company’s assets, liabilities, and shareholder’s equity at a specific point in time.
• What is the focus of an income statement?

  The income statement focuses on the revenue, expenses, gains, and losses of a company during a particular period.
• What does the statement of cash flows provide information about?

  The statement of cash flows provides aggregate data regarding all cash inflows and outflows from operations and investments.
• What is net income referred to on the income statement?

  Net income is known as the “bottom line” on the income statement.
• What is the first component of a retained earnings calculation?

  Net income is the first component of a retained earnings calculation.
• What are the key components of a balance sheet?

  • Assets
  • Liabilities
  • Shareholder’s equity
• What are the key components of an income statement?

  • Revenue
  • Expenses
  • Gains
  • Losses
• What are the key components of a statement of cash flows?

  • Cash inflows
  • Cash outflows
• How is equity at the end of a period calculated?

  Equity at the end = equity at the beginning + net income – dividends.
• How is dividends calculated?

  Dividends = equity at the beginning + net income – equity at the end.
• What is the accounting equation?

  Assets = liabilities + equity.
• How do you calculate total liabilities?

  Total liabilities = total assets – equity.
• How is equity calculated with increased assets and liabilities?

  Equity = (total assets + increased assets) – (total liabilities + increased liabilities).
• What is the main objective of financial accounting and reporting?

  The main objective is to provide information about a company’s financial performance and position.
• When are expenses recorded in accounting?

  Expenses are recorded as soon as transactions occur, when cash changes hands.
• When is revenue recorded under accrual basis?

  Revenue is recorded when it’s earned under accrual basis.
• When is revenue recorded under cash basis?

  Revenue is recorded on the income statement when cash is received under cash basis.
• What happens to prepaid expense accounts when actual expenses are incurred?

  Decrease prepaid expense account and increase actual expense account.
• What is unearned revenue?

  Unearned revenue is money received from a customer for a service that has not yet been performed.