Financial Accounting test 1

Which of the following financial statements is prepared as of a specific point in time? a. Balance sheet. b. Income statement. c. Retained earnings statement. d. Statement of cash flows.

A

Liabilities

Accounts payable, wages payable, interest payable, taxes payable, notes payable, bonds payable

Stockholders' Equity

Assets remaining in a business after all liabilities have been settled. Total assets - total liabilities = Stockholders' equity

Assets

Cash, accounts receivable, inventory, prepaid insurance, property, equipment

Net income will result during a time period when a. assets exceed liabilities. b. assets exceed revenues. c. expenses exceed revenues. d. revenues exceed expenses.

D

Which of the following did not result from the Sarbanes-Oxley Act? a. Top management must now certify the accuracy of financial information. b. Penalties for fraudulent activity increased. c. Independence of auditors increased. d. Tax rates on corporations increased.

D

FASB

Financial Accounting Standards Board

GAAP

Generally Accepted Accounting Principles

IRS

Internal Revenue Service

SEC

Securities and Exchange Commission

Going Concern Assumption

The belief that the business will continue operating for the foreseeable future, or an indefinite time. This concept justifies, for example, recording revenue before it is collected and expenses before they are paid.

Economic Entity Assumption

The idea that only the business' transactions should be recorded in the entity's books. Owner and mangers' personal transactions should NOT be recorded in the business records

Periodicity Assumption

The life of the business can be divided into artificial time periods. The result is useful reports that cover those periods can be prepared for the business. The basic fiscal (accounting) period is one year, but financial statements are usually prepared for shorter periods such as a quarter or month. The information presented then can be compared consistently with other like time periods for purposes of analysis and comparison.

Monetary Unit Assumption

This standard requires that only those things that can be expressed in money are included in the accounting records. So, important information for decision makers such as "customer satisfaction" measurements are NOT reported in the financial statement

Historical Cost

Value of the original cost of an asset

Fair Value measurements

measures the current market value of the asset