Financial Accounting Chapter 1

Ace your homework & exams now with Quizwiz!

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


Related study sets

Laryngology ENT MCQS- 4th Year- PMU

View Set

BIOL 1001 Hrincevich Chapter 2 HW/Quiz Questions

View Set

Kin 242 Chapter 16 Practice Quiz

View Set