Flashcard library · Business & Economics
Accounting Fundamentals
This flashcard deck provides a solid foundation in Accounting Fundamentals, perfect for students beginning their journey in business or finance. It covers essential definitions, core principles, and the main financial statements, ensuring you grasp the building blocks of how businesses track and report their financial health. Master these concepts to confidently tackle more advanced accounting topics.
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What is accounting?
Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.
State the basic accounting equation.
The basic accounting equation is Assets = Liabilities + Owner's Equity (or Shareholder's Equity).
Define Assets in accounting.
Assets are economic resources owned or controlled by a business that are expected to provide future economic benefits.
Define Liabilities in accounting.
Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future.
Define Owner's Equity (or Shareholder's Equity) in accounting.
Owner's Equity represents the owners' residual claim on the assets of the business after deducting liabilities, often comprising contributed capital and retained earnings.
What is the primary purpose of the Income Statement?
The Income Statement reports a company's financial performance over a specific period by summarizing revenues earned and expenses incurred, resulting in net income or loss.
What financial information does the Balance Sheet report?
The Balance Sheet presents a company's financial position at a specific point in time by listing its assets, liabilities, and owner's equity.
What is the main purpose of the Statement of Cash Flows?
The Statement of Cash Flows reports the cash generated and used by a company during a specific period, categorized into operating, investing, and financing activities.
In double-entry accounting, what do "debits" and "credits" represent?
Debits represent entries on the left side of an account and typically increase asset and expense accounts, while credits represent entries on the right side and typically increase liability, equity, and revenue accounts.
Explain the Revenue Recognition Principle.
The Revenue Recognition Principle states that revenue should be recognized when it is earned, regardless of when the cash is received.
Explain the Matching Principle (or Expense Recognition Principle).
The Matching Principle dictates that expenses should be recognized in the same period as the revenues they helped to generate.
What is the Historical Cost Principle in accounting?
The Historical Cost Principle states that assets should be recorded at their original cost at the time of purchase, and this cost should be used for subsequent accounting purposes.
What is the Going Concern Assumption?
The Going Concern Assumption presumes that a business entity will continue to operate indefinitely into the foreseeable future and will not be liquidated.
Differentiate between Financial Accounting and Managerial Accounting.
Financial accounting provides information for external users (e.g., investors, creditors), while managerial accounting provides information for internal users (e.g., management) to make decisions.
Who are the primary external users of financial accounting information?
Primary external users include investors, creditors (lenders), government agencies, and the general public, who use the information to make investment, lending, or regulatory decisions.