MGMT 160 Q4 Accounting
The "Dual Aspect" explains that every transaction affects at least two items in the basic accounting equation and preserves the equation's equality. What is the fundamental accounting equation? (2 points)
Assets = Liabilitites + Shareholder's equity
What are the three core financial statements? Briefly define the purpose of each statement (i.e. what is the gist of each statement). Indicate for each statement if it is for a point in time or a period of time. Hint: "The Statement of Cash Flows" and "The Footnotes" are NOT one of the three core financial statements!
1. Balance Sheet: snapshot; specific point in time a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period. 2. Income Statement: moving picture, a period in time An income statement is also called as profit and loss and it shows the company's revenues and expenses during a particular period. It indicates how the revenues are transformed into the net income. 3. Statement of cash flows: reports on the company's cash movement are during the period separating them by operating, investing, and financing actions. (cashpool)
The article discusses 12 basic accounting concepts and assumptions that anyone interested in financial statements need to understand. Excluding the "Dual Aspect", list FOUR of the other 11 and describe in a sentence or two. If you forgot the answer to Question #1 (Dual Aspect), you can list two additional concepts (6 total) for two potential bonus points.
1. Business Entity: Financial statements are prepared for a business entity that is separate and distinct from its owners. = defines the accountant's area of interest: a business entity that is separate and distinct from its owners. 2. Going Concern: Unless evidence suggests otherwise, it is assumed that the entity will continue operations into the foreseeable future. those preparing and auditing general purpose financial statements for a business entity assume that the entity will continue operations into the foreseeable future. 3. Monetary Unit: Accounting is a measurement process that deals only with events that can be measured in monetary terms. - Obviously, financial statements should indicate the currency on which they are based. 4. Historical Cost: In accounting under the traditional historical cost paradigm, historical cost is the original nominal monetary value of an economic item. Historical cost is based on the stable measuring unit assumption.
