Chapter 14
Together, the income statement and the balance sheet answer two basic questions. What are they?
1. How much did the firm make or lose? 2. How much is the firm presently worth based on historical values found on the balance sheet?
What are the five basic classifications? What ratios are found in each category?
1.Profitiability ratios measure the amount of operating income or net income an organization is able to generate relative to its assets, owner's equity, and sales. 2. Asset utilization ratios- Measures how well a firm uses its assets to generate each $1 of sales. 3. Liquidy ratios- Measures the speed with which a company can turn its assets into cash to meet short-term debt. 4. Debt Utilization ratio- Measures how much debt an organization is using relative to other sources of capital, such as owners equity.
Which accounts appear under "Current liabilities"?
Accounts payable, wages payable, taxes payable, notes payable, other current liabilities, and total current liabilities.
Discuss the external uses of financial statements.
External users are not involved in the operations of the company but hold some financial interest. External users are either an investor, customer, creditor, tax authority, or regulatory authority. These accounting statements are used for filing income taxes, obtaining credit from lenders, and reporting results to the firm's stockholders.
Describe the accounting process and cycle.
Many of the functions are carried out by private and public accounts. The accounting process goes as followed; The accounting equation-organizes asses, liabilities, and owners equity. Double-entry book keeping- records and classifies business transactions. Accounting cycle-A far step procedure of an accounting system. The 4 steps are: Examine source documents, record transactions, post transactions, and prepare financial statements.
The income statements of all corporations are the same format. True or false? Discuss.
This is false because there are multiple types of statements. There are classified income statements, profit and lose income statement, and an operating statement.
