Chapter 2
What is GAAP and who oversees it?
*GAAP stands for (Generally Accepted Accounting Principles) *GAAP was established by the Financial Accounting Standards Board (FASB) and is the format required by the SEC when companies submit their quarterly and annual reports.
What checks are there on the accuracy of these statements?
-Public companies must use a common set of rules and standard format when they prepare their reports. -Corporations are required to hire a neutral party, known as an auditor, to check the annual financial statements, ensure that the statements are prepared according to GAAP and provide evidence to support the reliability of the information. -In addition to the auditor's role in reviewing the financial statements, the Sarbanes-Oxley Act requires both the CEO and CFO to personally attest to the accuracy of the financial statements presented to shareholders and to sign a statement to the effect.
A consensus estimate of future earnings by individuals that are not employees of the firm is known as?
Analysts' estimates
Earnings are important to financial managers b/c investors use earnings to make forecasts about a company's ??? and ultimately stock price.
Cash flows
What are the components of stockholders' equity are ?
Common Stock,, Paid-in surplus, and retained earnings
Which of the following is NOT considered to be an operating expenses on the i/s?
Corporate Tax
A company's after-tax profits measured per unit of common stock are known as ?
Earnings per share
In the US, publicly traded companies can choose whether or not they wish to release periodic financial statements. (T/F)
False
(T/F) The balance sheet shows the assets, liabilities, and stockholder's equity of a firm over a given length of time
False (Look at a specific point in time) SNAPSHOT
Every public company is required to produce quarterly and annual financial statements. Those statements are?
Statement of financial position I/S Statement of Cash Flows Statement of Stockholders' Equity
Which of the following are NOT one of the financial statements that must be produced by a public company?
The Statement of Activities
Which of the following statements regarding the income statement is INCORRECT
The income statement shows the cash flows and expenses at a given point in time.
What best describes why a firm produces financial statements?
To provide a means for interested outside parties such as creditors to obtain information about a firm , with an overview of the short- and long- term financial condition of a business.
What is a firm's Net Income?
the last bottom line on the i/s -a measure of the firm's profitability over a given period. -The difference between the sales and other income generated by a firm, and all costs, taxes, and expenses incurred by the firm in a given period.
