BA 1500 Accounting and financial statements
Who of the following might be the most interested in a company's liquidity ratios?
A supplier who bills monthly for manufacturing materials
Classification (step 3 of accounting process)
Creating an accounting ledger Organize journal entries in categories within a ledger
Recording (step 2 of accounting process)
Creating journal entries Log daily transactions in journals
Items that a business owns that can be converted into cash within one year are called ______.
Current assets
On a balance sheet, the value of a firm if its assets were sold and its debts paid is called owners' _____________.
Equity
Assets
Items of value owned by the business
Summarization (step 4 of accounting process)
Running a trial balance Test the accuracy of the ledger
Liquidity ratios measure a company's ability to meet __________ financial obligations.
Short-term
By reviewing the line items on an income statement, the owner of a company can learn which of the following? More than one answer may be correct. Liabilities Assets Operating expenses Net income
Operating expenses Net income
Anything that a firm owns is known as ____.
an asset
Items such as inventory and accounts receivable, which can be converted into cash within one year, are called _____________ assets.
current
A debt that the firm owes to a person or organization outside the company is called a(n) _______.
liabilities
Debts that the firm owes to outside individuals and organizations are known as ______.
liabilities
Collection (step 1 of accounting process)
Finding unorganized business transaction records Locate and sort records
Reporting (step 5 of accounting process)
Issuing financial statements
Which role(s) do accountants play in a business organization?
They prepare budgets and check compliance or deviation. They record financial information and ensure its accuracy.
Items that are relatively permanent and meant to be used over a long period of time, such as equipment, land, buildings, furniture, and fixtures, are called ___________ assets
fixed
Owners' equity
the value of a firm if its assets were sold and its debts paid
Select all the sources of income that are commonly listed as line items in a cash flow statement. Financing activities Legal activities Operating activities Investing activities
Financing activities Operating activities Investing activities
Debt to owner's equity ratios
How dependent is the company on borrowed funds?
Activity ratios
How well does your company generate income?
Which financial ratio best shows whether a business has taken on too much debt?
Debt to owners' equity ratio
When accountants analyze items in a balance sheet, what do they obtain that is helpful for managing a business?
Financial ratios that indicate the company's performance
Profitability ratios
How high are profits
Another name for activity ratios is ______ ratios
efficiency
The ease with which an asset can be converted into cash is called __________.
liquidity
What is the defining characteristic of current assets?
They are liquid
What is the purpose of the accounting equation?
To calculate what a company is worth
Liquidity ratios
How well can your company pay its debts?
Select all the options that describe problems that may occur if a company's debt to owners' equity ratio is too high? The company may have too much inventory. The company may not be able to pay its bills. The company may not be able to pay stock dividends. The company may have difficulty borrowing additional funds.
The company may not be able to pay its bills. The company may not be able to pay stock dividends. The company may have difficulty borrowing additional funds.
Place the items that appear on a balance sheet in the order in which they must appear, starting with the first at the top.
1. current assets 2. fixed assets 3. intangible assets 4. current liabilities 5. long-term liabilities 6. owners equity
Liabilities
Debts owed by the company
What is the difference between managerial and financial accounting?
Managerial accounting prepares information for people inside the company, whereas financial accounting prepares information for people outside the company.
What is the purpose of activity ratios?
To evaluate how well a company converts assets into income
Land, buildings, cash, patents, supplies, and other things of value that a company owns are called _______.
assets
What are the four characteristics of financial statements, according to the Generally Accepted Accounting Principles (GAAP)?
Relevant, reliable, consistent, and comparable
What is the difference between assets and liabilities?
Assets are what the company owns, while liabilities are debts the company owes.
Which of the following statements about business accounting are true? Accounting helps assess whether a given company will be a profitable investment. Accounting is not useful to anyone other than accountants in business organizations. A company's accounting has little value to its suppliers. Accounting helps government agencies assess a company's liabilities and compliance.
Accounting helps assess whether a given company will be a profitable investment. Accounting helps government agencies assess a company's liabilities and compliance.
On a balance sheet, what items are relatively permanent and meant to be used over a long period of time, such as land, buildings, equipment, furniture, and fixtures?
Fixed assets
What is the relationship between fixed assets and liquidity?
Fixed assets are not easily converted into cash; they are relatively permanent and tend to be held for a long time.
What is the difference between fixed assets and intangible assets?
Fixed assets are physical objects, while intangible assets are not.
What is liquidity?
The ease with which an asset can be converted into cash
Who of the following might be the most interested in a company's liquidity ratios? - A customer who wants to ensure that the company's products are of good quality - A supplier who bills monthly for manufacturing materials - A stock manager who wants to learn more about product turnover. - The bank that holds the mortgage on the company's building
A supplier who bills monthly for manufacturing materials
Which kind of financial ratio indicates how well a company brings in money?
Activity ratios
Jordan's retail outlet owns the company's furniture, office supplies, inventory of products, and the land and building where the business is located. In what section of a balance sheet would those items be listed?
Assets
Select all the factors that are used in calculating profitability ratios. Assets Owners' equity Sales Inventory losses
Assets Owners' equity Sales
Which of these is the accounting equation? Owners' equity = company stock + fixed assets Accounts receivable = net income − prepaid expenses Current liabilities = long-term liabilities + notes payable Assets = liabilities + owners' equity
Assets = liabilities + owners' equity
What financial statement displays a company's assets, liabilities, and owners' equity? Profit-and-loss statement Income statement Cash flow statement Balance sheet
Balance sheet
What term is used to describe the last line item in a cash flow statement, which combines the amount of cash received and the amount paid out? Cash from operating activities Cash from financing activities Cash balance
Cash balance
Analysis (step 6 of accounting process)
Conducting a ratio analysis Assess the firm's financial condition
According to the Generally Accepted Accounting Principles (GAAP), what are the characteristics of financial statements?
Consistent Comparable Relevant Reliable
Which are line items shown on an income statement? Cost of goods sold Gross sales Owners' equity Operating expenses
Cost of goods sold Gross sales Operating expenses
What is the difference between current assets and fixed assets
Current assets can be converted into cash within one year, while fixed assets are more permanent and are usually held for a long time.
Something that has value but is not a physical object, such as a patent or trademark, is called a(n) ____________ asset.
Intangible
What part of a balance sheet would list patents, trademarks, and other valuables that are not physical objects?
Intangible assets
What are characteristics of a balance sheet? More than one answer may be correct. It projects the company's expected earnings for the next few years. It contains an examination of the overall health of the business. It reports a company's financial condition at a specific time. It displays the company's bank balances for each month of the year
It contains an examination of the overall health of the business. It reports a company's financial condition at a specific time.
The value of a firm if its assets were sold and its debts paid is called ______.
Owners equity
Irina has determined that as of September 30, her firm had $2,000 in retained earnings and $25,000 in common stock. In what section of the company's balance sheet would that data be listed?
Owners' equity
What is the main difference between assets and owners' equity?
Owners' equity considers value as if debts were paid.
Managerial
Preparing and monitoring department and company-wide budgets Analyzing the costs of production and marketing
Financial
Preparing information and analyses for people outside the company Preparing and filing documents for government agencies
Which financial ratios use sales, assets, or owners' equity to determine how well a business is doing?
Profitability ratios