Foundations
This common set of rules, standards, and procedures that companies use to compile and present their financial statements is abbreviated "GAAP."
What are Generally Accepted Accounting Principles?
This is the correct chronological order in which the four financial statements must be prepared.
What is 1. Income Statement, 2. Statement of Stockholders' Equity, 3. Balance Sheet, 4. Statement of Cash Flows?
Cash received from customers and cash paid for employee salaries are classified under this section of cash flows.
What are Operating Activities?
This is the foundational basic accounting equation that must always balance.
What is Assets = Liabilities + Stockholders' Equity?
Providing services to a customer for cash results in a debit to cash and a credit to this account.
What is Service Revenue?
This standard-setting body has the primary responsibility for establishing U.S. GAAP.
What is the Financial Accounting Standards Board (FASB)?
This financial metric is computed as Revenues minus Expenses on the Income Statement and flows directly into the Statement of Stockholders' Equity.
What is Net Income (or Net Loss)?
Cash paid to purchase office equipment or cash received from selling long-term investments goes into this section of cash flows.
What are Investing Activities?
Represented by "D-E-A" in DEALOR (or DEAD), these are the three account types that increase with a Debit.
What are Dividends, Expenses, and Assets?
Purchasing supplies on account from a vendor results in a credit to this account.
What is Accounts Payable?
This government agency has the legal authority to set accounting standards for public companies but largely delegates this authority to the FASB.
What is the Securities and Exchange Commission (SEC)?
This is the only financial statement that acts as a "snapshot" and is dated "as of" a specific date, rather than "for a period of time."
What is the Balance Sheet?
Borrowing cash from a bank by signing a note payable is classified as this cash flow activity.
What are Financing Activities?
Represented by "L-O-R" in DEALOR, these are the three account types that increase with a Credit.
What are Liabilities, Owners' Equity (Stockholders' Equity), and Revenue?
When we receive cash in advance for services to be performed next month, this liability account is credited.
What is Deferred Revenue?
This accounting principle dictates that we record business assets at the actual amount we paid for them, rather than their current market value.
What is the Historical Cost Principle?
This financial statement explains the change in cash from the beginning of a period to its end, answering where cash came from and how it was used.
What is the Statement of Cash Flows?
Cash received from issuing common stock or cash paid to stockholders as dividends goes into this section of cash flows.
What are Financing Activities?
This equity account increases with a debit, is not considered an expense, and represents a direct distribution of assets to owners.
What are Dividends?
This is the net change in total Assets when the company purchases office equipment for cash.
What is zero net change?
This accounting assumption states that the economic life of a company can be divided into distinct, artificial time intervals (such as months, quarters, or years).
What is the Periodicity Assumption?
This Balance Sheet equity account is calculated by adding Net Income and subtracting Dividends on the Statement of Stockholders' Equity.
What is Retained Earnings (specifically, Ending Retained Earnings)?
Paying cash in advance for a warehouse lease (Prepaid Rent) is classified as this type of cash flow activity.
What are Operating Activities?
This is the normal balance of the Deferred Revenue account
What is a Credit balance?
This is the net effect on total Stockholders' Equity when a company pays cash for weekly employee salaries.
What is a decrease in Stockholders' Equity?