Wyrnkaa - Chapter 3 Review Questions

The three sections of the Balance Sheet are Assets, Liabilities, and Equity. These are also the three components of the Accounting Equation: Assets - Liabilities = Equity

Assets are what a business OWNS. What a business OWES is a liability.

The Income Statement is made up primarily of Revenues and Expenses. The Income Statement can also include Gains and Losses, but the primary categories are Revenues and Expenses.

Revenues, Expenses, and Net Income are shown on the Income Statement.

Accrual basis accounting seeks to match revenues with the expenses used to generate those revenues. This means that revenues are recognized when they are earned, regardless of when the cash is received, and expenses are recognized when they are incurred, regardless of when the cash is paid out. This method provides a more accurate representation of a company's financial performance and allows for better decision-making based on the matching principle.

The Income Statement can be considered a statement of what you've earned because it shows your revenue, expenses, and net income/earnings over a period of time.

The statement of cash flows is concerned with how a company generated and used cash during a given period.

The three sections of a cash flow statement are Cash from Operating Activities, Cash from Investing Activities, and Cash from Financing Activities.

The Balance Sheet can be considered a statement of what you've got because it shows what your company owns (assets), owes (liabilities), and the net value to the owners (equity).

The accrual basis of accounting is required by GAAP in most cases.