Questions and Answers
The Full Disclosure accounting concept is applied when a company always prepares financial statements at the end of each monthly fiscal period.
False
Internal users of accounting information include company managers, officers, and creditors.
False
The statement of owner's equity reports changes in the capital account for a period of time.
True
Information needed to prepare a statement of owner's equity is obtained from the balance sheet.
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When a business has a net loss, the current capital amount will be less than the capital account balance.
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On the balance sheet, the current capital amount is taken from the work sheet.
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An income statement reports information on a specific date indicating the financial condition of a business.
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The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.
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Information needed to prepare an income statement comes from the Account Title column and the Income Statement columns of a work sheet.
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The income statement for a service business has five sections: heading, Revenue, Expenses, Net Income or Net Loss, and Capital.
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The income statement's account balances are obtained from the work sheet's Income Statement columns.
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Double lines ruled across both amount columns of an income statement indicate that the amount has been verified.
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The net income on an income statement is verified by checking the balance sheet.
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A financial ratio is a comparison between two components of financial information.
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Financial ratios on an income statement are calculated by dividing sales and total expenses by net income.
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When a business has two different sources of revenue, both revenue accounts are listed on the income statement.
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An amount written in parentheses on a financial statement indicates a negative amount.
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A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.
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The position of the total asset line on the balance sheet is determined after the Equities section is prepared.
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Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct.
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The date on a monthly statement of owner's equity prepared on May 31 is written as?
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Information needed to prepare a statement of owner's equity is obtained from a work sheet's Account Title column and?
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The amount of capital reported on a statement of owner's equity is calculated as?
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The date on a monthly balance sheet prepared on July 31 is written as?
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Information needed to prepare a balance sheet's Assets section is obtained from a work sheet's Account Title column and?
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Information needed to prepare a balance sheet's Liabilities section is obtained from a work sheet's Account Title column and?
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What is the area of accounting which focuses on reporting information to external users?
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What is the area of accounting that focuses on reporting information to internal users?
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What is a financial statement that reports the changes in the capital account for a proprietorship for a period of time?
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What is a comparison between two components of financial information?
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What is the calculation and interpretation of a financial ratio?
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What is reporting an amount on a financial statement as a percentage of another item on the same financial statement?
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What is the ratio of net income to total sales?
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Who are any persons or groups who will be affected by an action?
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What is a financial road map used by individuals and companies as a guide for spending and saving?
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What is a positive balance that remains after total expenses are subtracted from total income?
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What is a negative balance that remains after total expenses are subtracted from total income?
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What are financial statements providing information for a time period shorter than the fiscal year?
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What is a budgeting strategy of setting aside at least 10% of after-tax income for saving and investing?
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Study Notes
Accounting Concepts
- Full Disclosure accounting concept involves preparing financial statements at the end of each monthly fiscal period.
- Internal users of accounting information primarily include company managers and officers, not creditors.
Statement of Owner's Equity
- Reports changes in the capital account over a specified period.
- Information for this statement is sourced from a work sheet, specifically the Account Title and Income Statement columns.
- A net loss results in a current capital amount less than the capital account balance.
Income Statement Insights
- The income statement reflects revenue and expenses for a specific fiscal period, following the Matching Expenses with Revenue accounting concept.
- The account balances on an income statement are derived from the work sheet's Income Statement columns.
- Net income is confirmed by distinct indicators, such as double lines across amount columns.
Financial Ratios
- Financial ratios make comparisons between two components of financial information, aiding analysis.
- The return on sales (ROS) measures net income relative to total sales.
Financial Statement Characteristics
- A balance sheet provides a snapshot of financial information on a specific date, detailing assets, liabilities, and owner's equity.
- Double lines on balance sheet columns signify that totals have been verified as accurate.
Different Accounting Areas
- Financial accounting focuses on reporting information for external users.
- Managerial accounting provides insights for internal users.
Budgeting Principles
- A well-structured budget serves as a roadmap for individuals or companies, guiding spending and saving habits.
- The "Pay Yourself First" strategy encourages saving at least 10% of after-tax income.
Financial Health Indicators
- A surplus indicates a positive balance after deducting total expenses from total income, whereas a deficit shows a negative balance.
- Interim financial statements are prepared for periods shorter than a full fiscal year.
Stakeholder Awareness
- Stakeholders are individuals or groups affected by business actions, emphasizing the importance of transparency and accountability in reporting.
Analytical Techniques
- Vertical analysis involves presenting financial statement amounts as a percentage of a related item, facilitating easy comparisons.
- Ratio analysis involves calculating and interpreting financial ratios to assess a company's performance or financial health.
These notes summarize vital concepts and terms found in accounting, providing a helpful reference for study and understanding of principles necessary for financial reporting and analysis.
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Description
Test your knowledge on Chapter 7 of Accounting 1 with this engaging quiz. The questions cover key concepts such as the Full Disclosure accounting concept and the statement of owner's equity. Perfect for students looking to reinforce their understanding of accounting principles.
