Financial Accounting Chapter 1
Role of auditors?
-Help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements -Help investors and creditors in their decisions by adding credibility to the financial statements
Financial accounting should provide information that:
1. Is useful to investors and creditors in making decisions. 2. Helps to predict cash flows. 3. Tells about economic resources, claims to resources, and changes in resources and claims.
The cash collected from a customer would be recorded as which type of activity in the Statement of Cash Flows? a. Operating Activity b. Business Activity c. Investing Activity d. Financing Activities
A. Operating cash flows
Equation of Retained earnings
Assets - liabilities - common stock
Trained individuals hired by a company as an independent party to express a professional opinion of the extent to which financial statements are prepared in accordance with GAAP.
Auditors
Which relationship is reflected in the balance sheet? a. Revenues − Expenses = Net income b. Assets = Liabilities + Stockholders' Equity c. Assets − Liabilities = Net Income d. Assets = Revenues + Dividends
B. Assets = Liabilities + stockholders' equity
Which of the following assumptions indicates that the life of a company can be divided into artificial time periods for periodic reporting? a. Economic Entity b. Periodicity c. Going Concern d. Monetary Unit
B. Periodicity
All transactions that affect revenues or expenses reported in the income statement ultimately affect the _____________ through the balance in retained earnings.
Balance sheet
Heading of a balance for the company name "BAll Sack" on December 31st
Ball Sack, Balance Sheet, December 31
Heading of a statement of stockholder's equity for the company name "BAll Sack" ending December 31st
Ball Sack, Statement of stockholder's equity, For the month ended December 31
Heading of income statement for the company name "BAll Sack" ending December 31st
Ball sack, income statement, For the month ended on December 31
Operating cash flows + Investing cash flows + Financing cash flows = ??
Change in cash
Four Enhancing Characteristics
Comparability (consistency), verifiability, timeliness, and understandability
Clients for public accounting include?
Corporations, governments, nonprofit organizations, and individuals
The measurement role of accounting is to?
Create a record of the activities of a company
Which of the following accounts would appear in a company's income statement? a. Accounts Payable b. Cash c. Dividends d. Rent Expense
D. Rent expense
Auditors are independent parties that help: a. To establish accounting rules in the U.S. b. To ensure management has appropriately prepared the company's financial statements c. Investors and creditors in their decisions by adding credibility to the financial statements. d. Both b. and c. are correct
D. both b. and c. are correct
Excerpts from the Independent Auditor's Report of Dick's Sporting Goods, Inc. How would this be labeled?
DICK'S SPORTING GOODS, INC. Report of independent Auditors
Four assumptions that support GAAP?
Economic entity, monetary unit, periodicity, going concern
independent, private body that has primary responsibility for the establishment of GAAP in the United States.
FASB
independent, private-sector body with full-time voting members and a very large support staff. FASB, SEC, IASB?
FASB
FASB stands for?
Financial Accounting Standards Board
Investors and creditors make their decisions based on?
Financial accounting information
cash transactions involving lenders and stockholders
Financing cash flows
Financial accounting information should be based on formal standards of?
GAAP
GAAP stands for?
Generally Accepted Accounting Principles
The rules of financial accounting are called
Generally Accepted Accounting Principles (GAAP)
IASB is globally or US based?
Global
Which GAAP assumption states that, in the absence of information to the contrary, a business entity will continue to operate indefinitely and provides justification for measuring many assets based on their original costs.
Going concern
IASB stands for?
International Accounting Standards Board
Transaction related to revenues and expenses
Operating
cash transactions involving revenues and expenses
Operating cash flows
External users need which type of information to make decisions?
Periodic
Which GAAP assumption relates to the qualitative characteristic of timeliness?
Periodicity
Two career options in accounting?
Private and public accounting
Auditors, tax planners, and business consultants are all careers for which type of accounting? Public or private?
Public
two types of fundamental characteristics?
Relevance and faithful representation
Equation of net income/loss
Revenue - expenses
The amounts recorded when the company sells products or provides services to customers are referred to as?
Revenues
__________ are recorded at the time the company provides products or services to customers.
Revenues
FASB is governed by?
SEC
To help ensure that management has in fact appropriately applied GAAP, the ________ requires independent outside verification of the financial statements of publicly traded companies.
SEC
SEC stands for?
Securities and Exchange Commission
group that has been given power by congress to enforce the proper application of financial reporting rules for companies whose securities are publicly traded
Securities and exchange commission
Which financial statement Measures activities involving cash receipts and cash payments over an interval of time
Statement of cash flows
Financial statement that summarizes the changes in stockholder's equity over an interval of time?
Statement of stockholder's equity
Expenses
The cost of selling goods or services
Stockholders' Equity
The owners' claim to assets or resources
FASB is globally or US based?
US
Which dollar is most appropriate common denominator to express information about financial statement elements and changes in those elements.
US dollar
Liabilites + stockholder's equity=?
assets
On a balance sheet cash, accounts receivable, supplies, and equipment would appear under which heading?
assets
cash, inventory, supplies, buildings, and equipment are all?
assets
resoucres of a company are?
assets
resources owned
assets
Equation of Stockholder's Equity
assets - liabilities
independent intermediaries that help to ensure that management appropriately applies financial reporting rules in preparing the company's financial statement
auditors
Resources equal creditors' and owners' claims to those resources
balance sheet
Which financial statement presents the financial position of the company on a particular date?
balance sheet
assets and liabilities are reported on which financial statement?
balance sheet
which financial statement does common stock appear on?
balance sheet
Liabilities and Stockholders' Equity is what?
claims to resources
business is legally separate from its owners
corporation
which type of business has limited liability of stockholders
corporation
Constraints =?
cost effectiveness
employees
decide employment opportunities
competitors
decide market share and profitability
local communities
decide on environmental issues
regulators
decide on social welfare
tax authorities
decide on taxation policies
managers
decide production and expansion
suppliers
decide the customer's ability to pay for supplies
investors
decide whether to invest in stock
creditors
decide whether to lend money
customers
decide whether to purchase products
distributions to stockholders
dividends
Which GAAP assumption states that we can identify all economic events with a particular economic entity?
economic entity
costs of selling products or services
expenses
common stock is external o internal source
external source
completeness, neutrality, free from error are what fundamental characteristic?
faithful representation
independent, private-sector group that is primarily responsible for setting financial reporting standards in the US
financial accounting standards board
Transaction with lenders and owners
financing
transactions the company has with investors and creditors
financing activities
What are the three business activities
financing, investing, operating
financial statement that repots the company's revenues and expenses or an interval of time
income statement
profitability of the company
income statement
Which two financial statements show activity over a period of time?
income statement and Stockholder's equity
what are the primary financial statements
income statement, statement of stockholders' equity, balance sheet, statement of cash flows
Financial Accounting
information provided for external users
Managerial Accounting
information provided for internal users
retained earnings are an internal or external source
internal source
Body that is attempting to develop a single set of high-quality, understandable global accounting standards.
international accounting standards board
Transactions involving the purchase and sale of productive assets
investing
transactions involving the purchase and sale of resources that provide benefit for several years
investing activities
cash transactions involving purchase and sale of long-term assets
investing cash flows
On a balance sheet accounts payable and salaries payable would appear under which heading?
liabilities
amounts owed
liabilities
Equation of assets
liabilities + stockholders equity
Cost effectiveness
means benefits exceeds costs
Which GAAP assumption states in order to measure financial statement elements, we need a unit or scale of measurement
monetary unit
rev > expenses
net income
expenses > rev
net loss
Objective of financial accounting? YES or NO? maximize tax revenue to the federal government
no
Objective of financial accounting? YES or NO? guarantee that business will not go bankrupt
no
Objective of financial accounting? YES or NO? prevent competitors from offering lower-priced products
no
transactions that relate to the primary operations of the company
operating activities
Business is owned by two or more persons
partnership
Financial accountants Managerial accountants Internal auditors Tax preparers Payroll managers are all types of careers for which type of accounting? public or private?
private
____________ accounting means providing accounting services to the company that employs you.
private
revenues - expenses=?
profit
____________ accounting firms are professional service firms that traditionally have focused on three areas: auditing, tax preparation/planning, and business consulting.
public
Confirmatory Value, predictive value and materiality are what type of fundamental characteristic?
relevance
To be useful for decision making, accounting information should have?
relevance and faithful representation.
Members of FASB include?
representatives from the accounting profession, large corporations, financial analysts, accounting educators, and government agencies.
Assets
resources owned by a business
Amounts earned from sales of products or services are referred to as:
revenues
Revenues
sales of products or services to customers
Business is owned by one person
sole proprietorship
Change in cash as a result of operating, investing, and financing activities
statement of cash flows
Dividends are reported on which financial statement
statement of stockholder's equity
Change in owners' claims to resources.
statement of stockholders' equity
All profits of company are claimed solely by
stockholders
assets - liabilities =?
stockholders equity
common stock + retained earnings=?
stockholders equity
owners' claims to resources
stockholders equity
Liabilities
what a company owes or creditor's claims to resources
Objective of financial accounting? YES or NO? provide information that is useful to investors and creditors
yes
Objective of financial accounting? YES or NO? provide information about resources and claims to resources
yes
Objective of financial accounting? YES or NO? provide information to help users in predicting future cash flows
yes
clients for private accounting include?
your particular employer
