Study.com Financial Accounting Chapter 2

To tell whether or not a business made money or lost money in a given time period

Explain the purpose of an income statement.

Investing activities

Susie owns an engineering firm; she recently sold a piece of engineering equipment that was no longer needed by her company. In which section of a statement of cash flows would Susie report this transaction? a. Operating activities b. Investing activities c. Selling activities d. Financing Activities

Financial Statements

The balance sheet is a part of which of the following? a. Income Statement b. Financial Statements c. Statement of Retained Earnings d. Statement of Cash Flows

Arm's Length Transaction

What accounting principle states that people involved in a transaction should not be personally related? a. Going-Concern b. Objectivity c. Revenue Recognition d. Arm's Length Transaction

Contingent liability

What is a liability that has not yet occurred but the conditions are favorable that it will occur called? a. Contingent liability b. Recognized liability c. Unrecognized event d. Subsequent event liability

Accrual

Which method of accounting is preferred under GAAP?

Because it lists all the assets, liabilities, and owner's equity of a company.

Why is a Balance Sheet an important financial statement? Because it lists all the assets, liabilities, and owner's equity of a company. a. Because it explains how much money is retained and reinvested in the company. b. Because it shows how many employees were hired and fired in the company. c. Because it shows how much money came into the company and how much went out. d. Because it lets people know whether a company made or lost money.

c. To see if they would like to enter into a financial relationship with the company

Why might potential investors and creditors look at a company's financial statements? a. To better understand who the company's executives are b. To see how many employees the company has c. To see if they would like to enter into a financial relationship with the company d. To see how much they have gained or lost in the company e. To see if any of their money has been retained by the company

To know that the company has taken all possible measures to be accurate with their financial statements

Why would an investor require a third party audit of a potential portfolio company?

$0

Your plumbing company fixed the shower for Jane Smith. You have invoiced Jane for $1,000 but she has not paid yet. Using the cash method of accounting, how much should you show as income?

$8,000 Net Income

A company had total revenue of $20,000 for the month ending March 31. In the same time period, the company had $12,000 in expenses. What was the company's net income or net loss? a. $32,000 Net Income b. $8,000 Net Loss c. $32,000 Net Loss d. $8,000 Net Income

$85,000

A company sold $100,000 in product that cost $25,000 to make and distribute, including all overhead and admin. It started with retained earnings of $10,000 and declared no dividends. What is the ending retained earnings? a. $10,000 b. $110,000 c. $75,000 d. $85,000

statement of cash flows

A financial statement which shows how cash flows in and out of a company during a given time period is known as a(n) a. income statement b. statement of cash flows c. statement of retained earnings d. balance sheet

Cash Inflow, Financing Activity

ABC Ropes is interested in buying a retail store front to sell their ropes as they have previously only been selling online. ABC takes a loan from the bank in order to purchase a retail space outright. ABC receives a $250,000 loan from the bank to purchase their retail space. What is this $250,000 categorized as and what type of activity is it? a. Cash Outflow, Investing Activity b. Cash Inflow, Financing Activity c. Cash Outflow, Operating Activity d. Cash Inflow, Operating Activity

The financial statements would need to be changed to reflect the lawsuit.

An auditor makes a note that there is a patent lawsuit. After the audit is complete, the company loses the lawsuit. If the auditor noted this as a recognized event, what would need to be done?

Balance Sheet

Assets, liabilities and owner's equity are reported on which financial statement report? a. Statement of Cash Flow b. Balance Sheet c. Statement of Retained Earnings d. Income Statement

FASB

Bob is an accountant with ABC Gas. Over the last 6 months, Bob has made intentional errors in his financial reporting in order to earn more money for himself. Who evaluates and will punish Bob's indiscretion? a. GAAP b. PCOB c. ASPCA d. FASB

Separate Entity

Evan owns his own business running a coffee shop in a downtown area. Which principle must he remember that no matter what he does as a business owner, he must keep his personal dealings completely separate transactions? a. Separate Entity b. Arm's Length Transaction c. Objectivity d. Money Measurement

c. To tell whether or not a business made money or lost money in a given time period

Explain the purpose of an income statement. a. To list all the assets, liabilities, and owners' equity accounts and their balances b. To tell how much money made in a business was retained and reinvested in the business c. To tell whether or not a business made money or lost money in a given time period d. To list all the income accounts and their balances

b. As revenue

How can money be brought into a company? a. As expenses b. As revenue c. As liabilities d. As net loss

Auditor

Identify the person that performs the financial statement audit? a. Auditor b. Manager c. CEO d. Regulator

Regulator

Identify the person that reviews the audit report of a company to see if the company is being compliant with the law? a. Auditor b. Regulator c. Examiner d. Adjustor

It is not an arm's length transaction

If a sister sold a house to her brother, this would be suspicious to an investor because of which of the following reasons? a. It is not an arm's length transaction b. It would be coming from the same pool of money c. It is seldom a good idea to do business with family d. There would be a cloud on the title

Statement of Retained Earnings

If an investor wanted to see how much money was maintained and reinvested in the company, which financial statement would give that information? a. Statement of Cash Flow b. Statement of Retained Earnings c. Balance Sheet d. The Dow Jones Industrial Average e. Income statement

expenses

On an income statement, _____ is/are the money that a company pays out. a. revenue b. net loss c. expenses d. net income

As a change from cash to accrual

The Widget Company is changing the way it does its accounting. They used to report revenue only when the money was received, but now they will report it once an order is made. How will this show in the notes? a. As a change from a recognized event to an unrecognized event b. As a change in amortization method c. As a change from market value to cost d. As a change from cash to accrual

Investors

The people that have invested money into a company, as well as those who are considering making an investment into the company, are called _____. a. Company Leaders b. Investors c. Auditors d. Regulators

3

The statement of cash flows is broken down into how many activities? a. 3 b. 1 c. 4 d. 2

generally accepted accounting principles

The term GAAP stands for_____.

Objectivity

What accounting principle requires having the ability to rely on documented information to record financial data? a. Going-Concern b. Objectivity c. Revenue Recognition d. Monetary Measurement

Subsequent events

What are events that occurred after the date on the balance sheet but before the financial statements have been issued called? a. Lower of cost or market b. Subsequent events c. Contingent Liabilites d. Consolidated statements

d. A group of reports that tell a company's financial status at a certain point in time

What are financial statements? a. A group of reports that lists all the companies creditors b. A group of reports that tell what a company does c. A group of reports that tell who owns the company d. A group of reports that tell a company's financial status at a certain point in time e. A group of reports that tell how many investors a company has

GAAP

What are the guidelines that dictate how items are reported in the body of the financial statements and what is disclosed in the notes to the financial statements? a. Income statement b. IFSB c. GAAP d. AAPA

Accounting Principles

What are the rules and regulations that must be followed when reporting all financial data? a. Going-concern b. Revenue Recognition c. Accounting Principles d. Objectives

GAAP

What are the standards that all financial reports are created by? a. CAAP b. GAAP c. BASH d. IRS e. IASB

c. Give more information to users of the financial statements about items that appear in the financial statements.

What do the notes to the financial statements do? a. Tell all the accounts a company has and the balance in each. b. Tell how much money was made or lost in a given time period. c. Give more information to users of the financial statements about items that appear in the financial statements. d. Tells how cash came in to a company and went out of a company in a given time period.

b. Assets = liabilities + owners equity

What is the balance sheet equation? a. Assets = liabilities - owners equity b. Assets = liabilities + owners equity c. Assets = liabilities x owner's equity d. Liabilities = assets + owner's equity

c. Assets= Liabilities + Owner's Equity

What is the balance sheet equation? Liabilities= Assets + Owner's Equity a. Assets = Liabilities - Owner's Equity b. Assets + Liabilities= Owner's Equity c. Assets= Liabilities + Owner's Equity d. Assets + Owner's Equity= Liabilities

c. A Statement of Cash Flows shows how much money went in and out of the company; an Income Statement explains if the company made money or not.

What is the difference between a Statement of Cash Flows and Income Statement? a. A Statement of Cash Flows explains if the company made money or not; an Income Statement shows how much money went in and out of the company. b. A Statement of Cash Flows shows how much money went in and out of the company; an Income Statement shows how much money is retained and reinvested in the company. c. A Statement of Cash Flows shows how much money went in and out of the company; an Income Statement explains if the company made money or not. d. A Statement of Cash Flows lists assets, liabilities and owner's equity; an Income Statement shows how much money is retained and reinvested in the company. e. A Statement of Cash Flows shows how much money is retained and reinvested in the company; an Income Statement lists assets, liabilities, and owners equity.

Operating

What is the section of the statement of cash flows that includes activities that occur during the normal day-to-day operations of a company? a. Equity b. Operating c. Assets d. Financing

b. It is the statement that explains any changes in the cash balance of a company during an accounting period.

What is the statement of cash flows? a. It is the statements that lists all the assets, liabilities and owners equity of a company, and the balances in each account. b. It is the statement that explains any changes in the cash balance of a company during an accounting period. c. It is the statement that tells how much of the company's net profit was retained and reinvested in the company. d. It is the financial statement that tells the net profit or loss of a company for a given time period.

External Audit

What is the term for an examination of a company's financial records by someone that is not an employee of the company? a. Auditor b. Internal Audit c. Financial Statements d. External Audit

Every single business transaction is recorded in dollars and cents.

When a criminal case is tried, the stenographer writes down every word of the proceeding. How does the principle of monetary measurement differ? a. Only transactions where money is paid out are recorded. b. Depreciation of assets should be kept as a separate log. c. Any transaction should recorded for IRS audit purposes. d. Every single business transaction is recorded in dollars and cents.

Statement of Retained Earnings

Which financial statement shows how much money that a company made was retained and reinvested in the company? a. Statement of Retained Earnings b. Balance Sheet c. Income Statement d. Statement of Cash Flows

b. Income Statement

Which financial statement tells whether a company made or lost money in a given time period? a. Statement of Retained Earnings b. Income Statement c. Statement of Cash Flows d. Balance Sheet

Assets

Which of the following are things that you own? a. Balance Sheet b. Liabilities c. Income Statement d. Assets e. Owner's Equity

c. Revenue - Expenses = Net Income or Net Loss

Which of the following is the equation used for the basic income statement? a. Expenses + Revenue = Net Income or Net Loss b. Revenue / Expenses = Net Income or Net Loss c. Revenue - Expenses = Net Income or Net Loss d. Revenue + Expenses = Net Income or Net Loss

Cost of the raw materials

Which of the following would be a cash outflow operating activity for a small healthcare manufacturer? a. Cost of the raw materials b. Paying the staff c. Revenue from a new order d. An accounting of bad debt

Financing

Which of the sections of the statement of cash flows includes activities that involve cash receipts or cash payments from changes on long-term liabilities? a. Equity b. Investing c. Financing d. Operating

Balance sheet

Which of these financial statements shows assets, liabilities, and shareholder equity? a. Statement of cash flows b. Balance sheet c. Statement of retained earnings d. Income statement

It tells them whether or not the company is operating efficiently.

Why do business owners depend on the income statement? a. It tells them what types of activities have an effect on the cash balance of the company. b. It tells them whether or not the company is operating efficiently. c. It tells them how much money the company made was retained and reinvested in the company. d. It tells them all the accounts that the company has.

c. The statement of retained earnings requires the net income from the income statement.

Why is it necessary to complete the basic income statement prior to completing the statement of retained earnings? a. The statement of retained earnings requires cash flow from the income statement. b. The statement of retained earnings requires the total expenses from the income statement. c. The statement of retained earnings requires the net income from the income statement. d. The statement of retained earnings requires total equity from the income statement.