Accounting Concepts and Financial Statements
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Accounting Concepts and Financial Statements

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Questions and Answers

What does accounts receivable represent?

  • Cash received from customers
  • Obligations to pay suppliers
  • Right to receive money from a customer in the future (correct)
  • Expenses incurred during sales

    • What is the definition of net income?

  • Total revenues minus total expenses
  • When revenues exceed expenses (correct)
  • When expenses exceed revenues
  • The same as gross profit

    • Which of the following is NOT a component of operating activities?

  • Wages payable
  • Selling expenses
  • Investing income (correct)
  • Cost of goods sold

    • What information does the income statement provide?

    <p>Revenues and expenses for a specific period of time</p> Signup and view all the answers

    What is the purpose of the retained earnings statement?

    <p>To show amounts and causes of changes in retained earnings</p> Signup and view all the answers

    Which of the following is a liability arising from an expense?

    <p>Wages payable</p> Signup and view all the answers

    How does the net loss occur?

    <p>When expenses exceed revenues</p> Signup and view all the answers

    What is a common misconception about gross profit?

    <p>It is the same as total comprehensive income</p> Signup and view all the answers

    What costs are categorized as nonmanufacturing overheads?

    <p>Period costs that are expensed as incurred</p> Signup and view all the answers

    Which of the following is an example of a period cost?

    <p>Legal fees incurred for business contracts</p> Signup and view all the answers

    How are manufacturing overheads characterized?

    <p>They include both fixed and variable costs.</p> Signup and view all the answers

    Which overhead cost would typically be classified as a variable overhead?

    <p>Electricity bills</p> Signup and view all the answers

    What distinguishes accrual-based accounting from cash-based accounting?

    <p>Accrual-based accounting records income regardless of cash flow.</p> Signup and view all the answers

    What is the purpose of allocating manufacturing overhead costs?

    <p>To evenly distribute costs among produced units</p> Signup and view all the answers

    Which method is used for traditional overhead cost allocation?

    <p>Single allocation basis determined at the start of the period</p> Signup and view all the answers

    According to the learning objectives, which of the following relates to assessing a company's financial health?

    <p>Financial Ratios</p> Signup and view all the answers

    Which of the following best describes an 'allocation basis' in manufacturing overhead?

    <p>A measure used to divide overhead costs among units</p> Signup and view all the answers

    Which organization standards do corporations in the US primarily follow?

    <p>GAAP</p> Signup and view all the answers

    Which of the following costs would be classified as indirect labor?

    <p>Wages for the plant superintendent</p> Signup and view all the answers

    Which component is not part of the management process?

    <p>Budgeting</p> Signup and view all the answers

    What is the primary purpose of an external audit?

    <p>To verify the accuracy of financial statements and compliance with regulations.</p> Signup and view all the answers

    What is a key aspect of the control function in management?

    <p>Variance analysis</p> Signup and view all the answers

    Which of the following is a key advantage of cash-based accounting?

    <p>It simplifies financial reporting for small businesses.</p> Signup and view all the answers

    Which activity does not fall under financial management?

    <p>Initiation</p> Signup and view all the answers

    What does IFRS stand for in financial accounting?

    <p>International Financial Reporting Standards</p> Signup and view all the answers

    In management, which process follows execution?

    <p>Monitoring</p> Signup and view all the answers

    How does an accrual-based accounting system record expenses compared to cash-based accounting?

    <p>Records expenses as soon as the bill arrives.</p> Signup and view all the answers

    What is the primary purpose of variance analysis in financial management?

    <p>To compare planned and actual performance</p> Signup and view all the answers

    Which financial aspect does liquidity primarily reflect?

    <p>A company's ability to meet short-term obligations.</p> Signup and view all the answers

    Which of the following is essential during the planning stage of management?

    <p>Assessing resource requirements</p> Signup and view all the answers

    Which option best describes the 'compare' function in management?

    <p>Analyzing performance against plans</p> Signup and view all the answers

    What role does budgeting serve in financial management?

    <p>Forms a financial plan for resources</p> Signup and view all the answers

    Which function is primarily focused on handling discrepancies in financial outcomes?

    <p>Control</p> Signup and view all the answers

    Which of the following best outlines the steps of project management?

    <p>Planning, Executing, Controlling, Closing</p> Signup and view all the answers

    What is the correct calculation for the Quantity variance given the budget quantity and actual quantity?

    <p>$800</p> Signup and view all the answers

    Which type of variance focuses on differences between the actual costs incurred and the budgeted costs?

    <p>Material variance</p> Signup and view all the answers

    What would be the price variance if the actual quantity bought was 1,200 at a price of $1.9?

    <p>$60</p> Signup and view all the answers

    Which of the following accounts had a credit balance in the provided financial statement?

    <p>Cash</p> Signup and view all the answers

    How does variance analysis aid businesses in financial planning?

    <p>By comparing past data with actual results</p> Signup and view all the answers

    Which components are essential when preparing a variance analysis report?

    <p>Predicted costs, actual numbers, outcomes</p> Signup and view all the answers

    What is the standard price for the budget quantity in the example stated?

    <p>$2.0</p> Signup and view all the answers

    Which type of variance is specifically related to the costs associated with labor?

    <p>Labor variance</p> Signup and view all the answers

    Study Notes

    Accounts Receivable

    • The right to receive money from a customer in the future as a result of a sale.

    Operating Activities

    • Expenses are the cost of assets consumed or services used.
    • Liabilities arising from expenses include accounts payable, interest payable, wages payable, sales taxes payable, and income taxes payable.
    • Net income occurs when revenues exceed expenses.
    • Net loss occurs when expenses exceed revenues.

    Company Resume

    • Companies prepare four financial statements from summarized accounting data:
      • Balance Sheet
      • Income Statement
      • Retained Earnings Statement
      • Statement of Cash Flows

    Income Statement

    • Reports revenues and expenses for a specific period of time.
    • Net income occurs when revenues exceed expenses.
    • Net loss occurs when expenses exceed revenues.

    Reflections (Checking Emaar's Financial Statements)

    • Fill the numbers for revenue and cost to calculate gross profit.
    • Understand why gross profit is not the same as total comprehensive income for the year.

    Retained Earnings Statement

    • Net income is needed to determine the ending balance in retained earnings.

    Retained Earnings Statement

    • Shows amounts and causes of changes in retained earnings during the period.
    • The time period is the same as that covered by the income statement.

    External Auditing

    • An external audit looks at the accuracy of a company's financial statements and whether its accounting practices comply with all applicable rules and regulations.

    Period Costs

    • Period costs are costs that are not involved in the production of the product.
    • They are expensed as they are incurred.
    • Examples include: general and administrative, legal fees, marketing, and accounting department.

    Manufacturing Overhead Allocation

    • Manufacturing overhead costs are allocated to the units that are produced during the period.
    • Methods of allocation include indirect materials, indirect labor, and general manufacturing overheads.
    • Overheads may be either fixed, variable, or mixed costs.

    Traditional Allocation Method

    • Overhead costs are allocated to individual products based on one allocation basis.
    • The allocation basis is the measure that will be used to divide the costs amongst the units.
    • Examples include direct labor hours, machine hours, kilograms, and components.

    Management

    • Involves planning, execution, monitoring, and control.

    Budgeting

    • Part of the planning process in financial management.

    Accrual Accounting Standards

    • GAAP (Generally Accepted Accounting Principles) is the standard in the United States.
    • IFRS (International Financial Reporting Standards) is the standard used by most countries.

    External Auditing (Continued)

    • Nonmanufacturing overheads are not associated with the production process.
    • They are essentially period costs of the company.

    Variance Analysis

    • Compares predicted costs or behavior with actual numbers and outcomes.
    • Helps businesses analyze past data, monitor costs, and plan for future expenses.
    • Three main types:
      • Material variance
      • Labor variance
      • Fixed overhead variance

    DM Variance

    • Quantity variance - compares actual and standard quantities * standard price
    • Price variance - compares actual and standard prices * actual quantity

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    Accounting and Finance Midterm PDF

    Description

    This quiz covers essential concepts in accounting, including accounts receivable, operating activities, and financial statements such as the balance sheet and income statement. Test your understanding of revenue, expenses, and gross profit calculations using Emaar's financial data.

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