unit 5

According to the accountant for Michael's Floral Supply, the firm's assets are $124,000 and its liabilities are $31,000. Which of the following statements is true?

$124,000 - $31,000 = $93,000. This calculation is a variation of the accounting equation: Assets = Liabilities + Owners' Equity.

What does a balance sheet include? Assets, liabilities and owner's equity Income Capital gains Dividends

A

Peter's Pet Shop generated $45,000 in cash from your company operations during the quarter and used $25,000 of this amount to pay off a short-term loan. What was the net result?

A cash increase of $20,000

You have an opportunity to buy your uncle's tire store. Before making your decision, you decide to analyze the balance sheet of the company. What will you look for when reviewing the balance sheet? Be specific. Answer: The things that i will look for when reveiwing a balance sheet is The assets: the resources from which it expects to gain some future benefit , most important assets, assets can be current or non-current liabilities: the debts that it owes to outside individuals or organizations, Common liabilities, accounts payable, deferred income, long-term debt owner's equity: the investment in mybusiness

Acceptable answer: A balance sheet is the sum of the assets, liabilities, and owner's equity accounts at the end of the accounting period. Its purpose is to demonstrate that assets are equal to liabilities plus owner's equity at the end of an accounting period. Information on a firm's balance sheet (such as changes in assets, liabilities, owner's equity, and retained earnings) can be used to make a decision to buy or hold an investment.

Explain why a firm's financial statements should be audited. What might happen if audits do NOT occur? Discuss. a firm's financial statements should be audited to improve the accuracy of the statements and to make sure that a firm's financial statements have been prepared in accordance with generally accepted accounting principles, or GAAPS. If they do not occur the company could have accounting scandal

Acceptable answer: It is important that managers, investors, and potential investors be able to "trust the numbers." To improve the accuracy of a firm's accounting information and its financial statements, businesses rely on audits conducted by accountants employed by public accounting firms. The purpose of an audit is to make sure that a firm's financial statements have been prepared in accordance with generally accepted accounting principles (GAAPs). While an audit report does not guarantee that a company has not "cooked" the books, it does imply that, on the whole, the company has followed generally accepted accounting principles.

Which way would you determine if a firm made or lost money last year—by looking at the balance sheet or by looking at the income statement? Support your answer by explaining in general terms what accounts a balance sheet lists and what accounts an income statement lists. Selected Answer: Assets = Liabilities + Owners' Equity. This is the ideal situation where the assets balances with liabilities and owners' equity, a loss will be detected when the liabilities are higher than the assets showing a negative owners equity. The income statement Revenues - Cost of Goods Sold - Operating Expenses = Net Income. A loss will be encountered when the cost of goods sold and operating costs are higher than the revenue, showing a negative net income Correct Answer: Correct

Acceptable answer: The quickest way to determine if a firm is profitable or not would be to examine a company's income statement since an income statement is a summary of the firm's revenues, cost of goods sold, and expenses during a specified accounting period—usually a one-year period. A balance sheet is just a snapshot in time and reflects the financial position of the company in terms of assets, liabilities, and owners' equity at one point in time. Students may also include the fact that both the income statement and balance sheet (along with a firm's statement of cash flows) are included in a firm's annual report.

Office supplies are listed under which category on a balance sheet? Current assets

According to the accountant for Michael's Floral Supply, the firm's assets are $124,000 and its liabilities are $31,000. Which statement is correct? The owner's equity is $93,000

What is the process of systematically collecting, analyzing, and reporting financial information? Risk analysis Data analysis Accounting Systems analysis

Accounting

CPA

Accounting firms usually include on their staffs at least one certified public accountant, or CPA. A CPA has met state requirements for accounting education and experience and has passed a rigorous accounting examination. CPAs must also participate in continuing-education programs to maintain certification.

An income statement is sometimes referred to as what?

An earnings statement or a statement of income and expenses

What does a balance sheet include?

Assets, liabilities and owner's equity

TAX - Plans strategies and prepares returns for individuals and firms

COST - Determines the costs involved in producing specific products or services

In order for The Gift Market, a local specialty store, to purchase Christmas merchandise that will be sold in its store, it had to borrow money from a local bank. The debt owed to the bank is a(n) ____________.

Debts owed by a business are called liabilities. liability

Which of the following information is NOT provided to managers and employees within the organization through the work of managerial accountants? Hiring information

Eleanor was hired by Chili's to help with budgeting, determining the costs of the firm's meal services, recording transactions, and creating financial statements. What is Eleanor? Accountant

What kind of accounting generates financial statements and reports for interested people outside of an organization—lenders and suppliers, stockholders and potential investors, government agencies, and other stakeholders?

Financial

financial

Generates financial statements and reports for interested people outside the organization

not-for-profit

Helps organizations account for all donations and expenditures

Which of the following is NOT indicated by evaluating a firm's statement of cash flows?

How reported dollar values for assets, liabilities, and owners' equity look in a specified period of time

Which of the following would be considered a company's current asset? Inventory

In order for Sarah to purchase Christmas merchandise for her store, she had to borrow money from a local bank. This debt owed to the bank is considered what? Liability

Typical electronic funds transfer (EFT) applications include all of the following EXCEPT: Automated teller machines (ATMs) Initial public offering (IPOs) Automated clearinghouses (ACHs) Point-of-sale (POS) terminals, and electronic check conversion (ECC).

Initial public offering

The cash that Coca-Cola receives from providing customers with Coke and other soft drinks and juices would appear in which section of the statement of cash flows?

Operating

Ebony owns and operates her own bakery and coffee shop. She has no accounting training and can only afford three employees. How does she most likely handle the necessary accounting for her business?

Pay a public accountant to do the accounting for her business

managerial

Provides people within the organization with the information needed to make decisions for the company

Government

Provides services to ensure that tax revenues are collected and used to meet the goals of state, local, and federal agencies

Needs for success in accounting

Responsible honest ethical have strong background in financial management know how to use a computer and accounting software and must be able to communicate with people who need accounting information.

Which of the following represents the equation for an income statement?

Revenues - Cost of Goods Sold - Operating Expenses = Net Income

Connie's Cakes wants to know how much and when cash went out last year. Which is the best financial statement to find this information?

Statement of cash flows

From an executive's viewpoint, which of the following statements does not describe an executive's motivation to "cook" a firm's books? The desire to look good in the local newspapers or financial publications The desire to impress Wall Street analysts The desire to impress the firm's investors The desire to be ethical

The desire to be ethical The audit function and GAAPs offer some oversight and supervision in accounting practices and help disclose if an executive has cooked the books.

What does the term "liquidity" mean with regard to company assets?

The ease with which it can be converted into cash

The Cheese Shoppe's liabilities total $59,000 and its owners' equity is $124,000. Which of the following statements is true?

The total assets equal $183,000. Correct. $59,000 + $124,000 = $183,000. This calculation is a variation of the accounting equation: Assets = Liabilities + Owners' Equity.

What are revenues? The dollar amount earned by a firm from selling goods, providing services, or performing business activities

What does cost of beginning inventory plus cost of net purchases minus cost of ending inventory equal? Cost of goods sold

Accounting involves all but which of the following activities? Investing profits wisely

What elements make up a balance sheet? Owner's equity, assets, and liabilities

Which of the following is NOT a section of the income statement? Liabilities

What is another name for the income statement? Earnings statement or statement of income and expenses

What is the purpose of accounting? To help stakeholders make better business decisions by providing them with financial information

When Nathaniel applied for a loan to expand his business, the bank required that his financial statements be carefully examined by a CPA. What is the bank requiring? An audit

Connie's Cakes wants to know how many dollars in sales were made this year, what the expenses were and, how much profit was made. Which financial statement should she examine? Income statement

Which of the following represents the equation for an income statement? Revenues - Cost of Goods Sold - Operating Expenses = Net Income

The process of systematically collecting, analyzing, and reporting financial information is called ____________.

accounting

audit

an examination of a company's financial statements and the accounting practices that produced them purpose of an audit is to make sure that a firm's financial statements have been prepared in accordance with generally accepted accounting principles (GAAPs)

uses for accounting

answers questions about what has happened in the

double-entry bookkeeping

each transaction is recorded in two different accounts (once as a debit and once as a credit) to make sure each adds up to the same amount as a check on errors when you run trial balance.

private accountant

employed by a specific organization services designing a firm's accounting information system, managing its accounting department, and providing managers with accounting information, advice, and assistance

A public corporation must change its lead auditing firm ____________.

every five years This is one of the requirements of the Sarbanes-Oxley Act of 2002 to ensure that a corporation's financial information is accurate.

Financial accountants

furnish information to individuals and groups both inside and outside the organization in order to help them assess its financial performance. tells you how well you're running it

private accountant

is employed by a specific organization or business

If owners' equity were subtracted from total assets, the residual value would be ___________

liabilities One way to determine a firm's liabilities is to subtract the dollar amount of a firm's owners' equity from the dollar amount of its assets.

Managerial accountants

provide information and analysis to decision makers inside the organization in order to help them run it helps you keep your business running

public accountant

provides services to clients on a fee basis. They can be self-employed or an employee of an accounting firm.

An audit is ____________

required by many bankers and lenders who are trying to validate a firm's accounting statements The purpose of an audit is to ensure that financial statements have been prepared according to generally accepted accounting principles.

Balance Sheet

sometimes referred to as a statement of financial position, is a summary of the dollar amounts of a firm's assets, liabilities, and owners' equity accounts at the end of a specific accounting period. This statement must demonstrate that the accounting equation is in balance

Sarbanes-Oxley Act of 2002

the securities and exchange commossion must establish an oversight board to police the accounting industry the chief executive and financial officers must certify periodic financial reports and are liable for intentional violations of reporting requirements accounting firms cannot provide many types of non-audit and consulting services to the companies they audit auditors

public accountant

works on a fee basis for clients and may be self-employed or be the employee of an accounting firm.