Accounting Practice

What is a balance sheet?

Picture of the company at a specific point in time.

Which financial statement would you utilize to determine whether a company will be able to pay liabilities which are due in 30 days? Statement of stockholders' equity. Balance sheet. Income statement. Statement of cash flows.

Balance sheet.

What is the GAAP?

Generally Accepted Accounting Principles, is the accounting standards in a rule based system.

The primary user(s) of the auditor's report: investors of the company. Management. The securities and exchange commission (SEC). The company's audit committee.

investors of the company.

What is an independent auditor?

Also called an external auditor that specializes in public accounting. If they aren't employees of the company and don't have significant investment in it they can be external.

What is a Limited Liability Company

An LLC are hybrids that combine the flow through tax benefits with the limited liability associated with corporations with requiring the business to incorporate

What does the SEC get involved in?

Any publicly traded company

What's an operating expense?

Any transaction related to running the business and company product

What is an asset?

Anything the company owns

What are dividends?

Are payments made from corporation to it's stockholders

Balance Sheet Formula

Assets = Liabilities + Equity

What is a fixed asset?

Assets purchased by the company that are expected to last longer then a year

What is a long term investment?

Assets purchased by the company to be held as an investment

What is a examination auditor?

Auditors that perform detailed reviews, inspections and gather evidence and draw conclusions about the accuracy, completeness and fairness.

What documents are required for an audit?

Balance Sheet, Income Statement, Statement of Stockholders, Statement of cashflows.

What is the corporate tax formula?

Gross income - Deductions = Taxable income X 21$ (tax rate) = Regular Income Tax before credits - Tax credits = Total tax liability (Federal Income Tax)

Which financial statement would you use to determine a company's earnings performance during an accounting period? Balance sheet. Income statement. Statement of cash flows. Statement of stockholders' equity.

Income statement.

Who audits the company's 10k?

Independent/external auditors

Which type of bond interest is typically excluded from a corporation's gross income for tax purposes? Interest received on investments in federal government bonds. Interest received on investments in state, county, and city bonds. Interest received on investments in corporate bonds. Interest received on investments in foreign government bonds.

Interest received on investments in state, county, and city bonds.

What is interest?

The amount charged to the borrower for receiving the loan

What is Collateral?

The assets that are pleged by the borrowers to the creditors if they can't repay the loan

Which of the following characteristics most likely would heighten an auditor's concern about the risk of intentional manipulation of financial statements? Turnover of senior accounting personnel is low. Insiders recently purchased additional shares of the entity's stock. Management places substantial emphasis on meeting earnings projections. The rate of change in the entity's industry is slow.

Management places substantial emphasis on meeting earnings projections.

What are the advantages of a proprietorship?

No additional income tax, the owner pays taxes on any income earned by the business at her or his individual tax rate.

What is tax evasion?

Occurs when a taxpayer knowingly misrepresents the facts of a situation to decrease their tax liability

Which of the following entities is not a taxable entity for federal income tax purposes? Confad Incorporated, an Oklahoma C corporation listed on the NASDAQ (i.e., one of the major stock exchanges in the U.S.) Mr. Bob Clark, a U.S. citizen and resident of the state of West Virginia All choices are correct. PTS Limited, an Arizona partnership

PTS Limited, an Arizona partnership

What is the accrual method of accounting?

Recording revenue when it is earned regardless of when cash is received

What is financial accounting?

Records and related reports made for people outside the company

What is equity?

Refers to ownership, when a company sells their equity they're selling ownership

What is a Tax credit?

Tax credit reduces the taxable income on a dollar to dollar basis

Which organization is responsible for establishing and maintaining the Generally Accepted Accounting Principles (GAAP) for companies in the United States? The Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC). The Internal Revenue Service (IRS). The International Financial Reporting Standards (IFRS).

The Financial Accounting Standards Board (FASB).

The primary responsibility for preventing fraud in a company lies with: the company's management. the internal audit function. the external auditor. the audit committee of the board of directors.

the company's management.

What is tax avoidance?

When the structure in a company is created to legally reduce their tax liability

What is a partnership?

a business owned by two or more people

Audit risk can be eliminated by: involving specialists in the audit. increasing audit testing. audit risk cannot be eliminated. involving specialists in the audit.

audit risk cannot be eliminated.

Jackson Co. had gross income realized of $81,000. The company had deductions of $47,000 and a credit of $2,000. How much is Jackson's federal income tax if the company's tax rate is 21%? $1,720 Jackson doesn't have to pay corporate taxes. $5,140 $6,090

$5,140

What is a coporation?

A corporation can own assets and incur liabilities, owners are called stockholders.

What is double-entry?

A form of accounting that has two entries for each transaction

Why are regular or C Corporations subject to double taxation in the United States? Because their income is taxed at both the corporate level and again when received by stockholders. Because they are the only type of business entity subject to federal income tax. Because dividends paid by the corporation are shown as an expense on the Income Statement. Because they are required to pay a higher corporate tax rate of 21%.

Because their income is taxed at both the corporate level and again when received by stockholders.

What is debt?

Borrowing money from investors or the bank

What is proprietorship?

Business owned by one individual.

Who gets double taxation?

C-corps and regular corporations, S corporations are taxed as a partnership

What are the categories of cash flows that appear on a statement of cash flows? Cash flows from operating, investing, and financing activities. Cash flows from operating, production, and internal activities. Cash flows from financing, production, and growth activities. Cash flows from investing, financing, and service activities.

Cash flows from operating, investing, and financing activities.

What is stockholders equity divided in?

Common Stock and Retained Earnings

What is common stock?

Common stock is what all corporations must have to sell shares of ownership publicly

What are the 4 asset types?

Current assets, Long term investments, Fixed assets, Intangibles

What is a material misstatement?

When auditors focus on identifying material misstatements in the financial statement

Which of the following statements accurately represents a key legal right of debt investors? Debt investors can only recover their funds by liquidating assets if the company files for bankruptcy. Debt investors have no legal recourse to "call" the loan and demand payment in case of missed payments. Debt investors have the legal right to demand both interest and principal payments, and they can "call" the loan if the company fails to make payments on time. Debt investors can only demand payment of principal, not interest, if the company fails to make timely payments.

Debt investors have the legal right to demand both interest and principal payments, and they can "call" the loan if the company fails to make payments on time.

What's a current liability?

Debts expected to come due in a year

What is a liability?

Debts from the company, or a owed payment

What is a deduction?

Deductions are subtracted to arrive at a taxable income

What is the key difference between deductions and tax credits in the context of corporate taxation? Deductions and tax credits work in the same way and have the same impact on a corporation's tax liability. Deductions are applied after the tax liability has been determined, while tax credits are subtracted to arrive at taxable income. Deductions reduce the tax liability by multiplying the deduction amount by the tax rate, while tax credits reduce the tax due on a dollar-for-dollar basis. Deductions reduce the tax due on a dollar-for-dollar basis, while tax credits reduce taxable income.

Deductions reduce the tax liability by multiplying the deduction amount by the tax rate, while tax credits reduce the tax due on a dollar-for-dollar basis.

Which of the following statements accurately describes equity investors and debt investors in a business? Equity investors and debt investors are only concerned with the business's profitability and do not have any direct financial interest in the company's operations. Equity investors and debt investors both contribute to the business as owners and benefit from retained earnings. Equity investors contribute to the business as owners and benefit from retained earnings, while debt investors are creditors who expect both principal and interest payments. Equity investors are creditors who provide loans to the business and expect both principal and interest payments, while debt investors contribute to the business as owners and benefit from retained earnings.

Equity investors contribute to the business as owners and benefit from retained earnings, while debt investors are creditors who expect both principal and interest payments.

The objective of an audit of financial statements is to Ensure there are no misstatements in the financial statements. Express an opinion on the fairness with which the financial statements are prepared in accordance with generally accepted accounting principles (GAAP). Make suggestions as to the form or content of the financial statements. Express an opinion on the attractiveness of the company's financial performance for investors.

Express an opinion on the fairness with which the financial statements are prepared in accordance with generally accepted accounting principles (GAAP).

Which of the following is not an external users of financial accounting information? Investors Banks General public. Factory Line Manager

Factory Line Manager

What are companies required to file every year?

Form 10K

What is the primary scope of the Securities and Exchange Commission (SEC) in the United States? Regulating both public and private companies' financial reporting. Regulating and requiring financial reporting from public companies while exempting private companies from such regulations. Overseeing the financial reporting of all businesses, regardless of their public or private status. Applying strict regulations to ensure private companies' compliance with financial reporting requirements.

Regulating and requiring financial reporting from public companies while exempting private companies from such regulations.

Atlantic Corporation reported the following amounts at the end of the first year of operations Common stock $ 200,000 Sales revenue $ 800,000 Total assets $ 600,000 Dividends declared $ 40,000 Total liabilities $ 320,000 What are the retained earnings of Atlantic at the end of the year, and what amount of expenses were incurred during the year? Retained earnings are $280,000 and expenses incurred totaled $480,000. Retained earnings are $80,000 and expenses incurred totaled $720,000. Retained earnings are $80,000 and expenses incurred totaled $680,000. Retained earnings are $280,000 and expenses incurred totaled $520,000.

Retained earnings are $80,000 and expenses incurred totaled $680,000.

What is a retained earning?

Retained earnings are the total profit of the company

What is a Default?

The company can't repay their loans and default on it

What is the Maturity date?

The date the loan is to be paid back

What is principal?

The legal right for the bank to receive back the money they're owed

What is the statement of cash flows?

The only statement that uses the cash bias method

Which of the following best describes liabilities and stockholders' equity? They both increase when assets increase. They are reported on the income statement. They are the sources of financing an entity's assets. They are the economic resources owned by a business entity

They are the sources of financing an entity's assets.

What is the objective of an audit?

To express an opinion on whether an organizations statements are legitimate