Podcast
Questions and Answers
Which business activity primarily involves acquiring long-term assets?
Which business activity primarily involves acquiring long-term assets?
- Financing
- Operating
- Communicating
- Investing (correct)
Which financial statement primarily reflects a company's performance 'over a period of time'?
Which financial statement primarily reflects a company's performance 'over a period of time'?
- Statement of Stockholders' Equity
- Income Statement (correct)
- Statement of Cash Flows
- Balance Sheet
What is the correct order for the three lines in the heading of a financial statement?
What is the correct order for the three lines in the heading of a financial statement?
- Name of Entity, Name of Financial Statement, Date (correct)
- Name of Financial Statement, Name of Entity, Date
- Date, Name of Entity, Name of Financial Statement
- Name of Financial Statement, Date, Name of Entity
If a company has revenues of $150,000 and expenses of $90,000, what is the net income?
If a company has revenues of $150,000 and expenses of $90,000, what is the net income?
Which of the following is the primary purpose of accounting as a business function?
Which of the following is the primary purpose of accounting as a business function?
Which section of a company's financial statements would include details about dividends paid to stockholders?
Which section of a company's financial statements would include details about dividends paid to stockholders?
A company has painting revenue of $20,000, rent expense of $6,000, wage expense of $4,000, and utilities expense of $1,000. Using the income statement equation, what is the net income?
A company has painting revenue of $20,000, rent expense of $6,000, wage expense of $4,000, and utilities expense of $1,000. Using the income statement equation, what is the net income?
Among the forms of business organizations, which one is characterized by being legally separate from its owners?
Among the forms of business organizations, which one is characterized by being legally separate from its owners?
Bennett Drilling starts the year with $10,000 in common stock and issues an additional $7,000 worth of stock during the year. What is the ending balance of common stock?
Bennett Drilling starts the year with $10,000 in common stock and issues an additional $7,000 worth of stock during the year. What is the ending balance of common stock?
What is the primary effect of a company declaring and paying dividends on its retained earnings?
What is the primary effect of a company declaring and paying dividends on its retained earnings?
Given the following scenario for Bennett Drilling: Beginning Retained Earnings of $7,200, Net Income of $7,500, and Dividends Paid of $2,200, what is the ending balance of Retained Earnings?
Given the following scenario for Bennett Drilling: Beginning Retained Earnings of $7,200, Net Income of $7,500, and Dividends Paid of $2,200, what is the ending balance of Retained Earnings?
Which of the following events directly increases stockholders' equity?
Which of the following events directly increases stockholders' equity?
How does net loss impact the retained earnings account?
How does net loss impact the retained earnings account?
Which organization has the ultimate authority to establish financial accounting standards in the United States?
Which organization has the ultimate authority to establish financial accounting standards in the United States?
Management's responsibility regarding financial statements includes:
Management's responsibility regarding financial statements includes:
According to the conceptual framework, what are the two fundamental qualitative characteristics that make accounting information useful for decision-making?
According to the conceptual framework, what are the two fundamental qualitative characteristics that make accounting information useful for decision-making?
The going concern assumption is fundamental to accounting. If a company is facing likely liquidation in the near future, how should this impact their financial reporting?
The going concern assumption is fundamental to accounting. If a company is facing likely liquidation in the near future, how should this impact their financial reporting?
Which qualitative characteristic are 'comparability' and 'consistency' classified as?
Which qualitative characteristic are 'comparability' and 'consistency' classified as?
Which of the following best describes the fundamental accounting equation?
Which of the following best describes the fundamental accounting equation?
A company purchases equipment for $50,000 in cash. What is the effect on the accounting equation?
A company purchases equipment for $50,000 in cash. What is the effect on the accounting equation?
Which of the following is not considered a financing activity on the statement of cash flows?
Which of the following is not considered a financing activity on the statement of cash flows?
If a company's total assets are $200,000 and total liabilities are $80,000, what is the amount of stockholders' equity?
If a company's total assets are $200,000 and total liabilities are $80,000, what is the amount of stockholders' equity?
A company reports a net loss for the year. How does this loss typically affect the balance sheet?
A company reports a net loss for the year. How does this loss typically affect the balance sheet?
Which of the following transactions would immediately decrease the current ratio (Current Assets / Current Liabilities)?
Which of the following transactions would immediately decrease the current ratio (Current Assets / Current Liabilities)?
If a company has total assets of $500,000, total liabilities of $200,000, and common stock of $200,000, what is the value of retained earnings?
If a company has total assets of $500,000, total liabilities of $200,000, and common stock of $200,000, what is the value of retained earnings?
A company's net income is $50,000, depreciation expense is $10,000, and capital expenditures are $15,000. How does depreciation expense affect the cash flow from operations?
A company's net income is $50,000, depreciation expense is $10,000, and capital expenditures are $15,000. How does depreciation expense affect the cash flow from operations?
Which of the following is an example of an investing activity?
Which of the following is an example of an investing activity?
A company's current assets are $150,000 and its current liabilities are $100,000. Which of the following transactions would increase the current ratio?
A company's current assets are $150,000 and its current liabilities are $100,000. Which of the following transactions would increase the current ratio?
How would the purchase of office supplies on credit affect the balance sheet?
How would the purchase of office supplies on credit affect the balance sheet?
A company repays a note payable with cash. What is the impact on the accounting equation?
A company repays a note payable with cash. What is the impact on the accounting equation?
Which section of a company's annual report includes management's opinion on the company's performance and future outlook?
Which section of a company's annual report includes management's opinion on the company's performance and future outlook?
A company issues common stock for cash. What is the impact on the statement of stockholders' equity?
A company issues common stock for cash. What is the impact on the statement of stockholders' equity?
A company has revenues of $50,000, salary expenses of $20,000, rent expenses of $10,000, and administrative expenses of $5,000. What is the net income?
A company has revenues of $50,000, salary expenses of $20,000, rent expenses of $10,000, and administrative expenses of $5,000. What is the net income?
Which financial statement shows the financial position of a company at a specific point in time?
Which financial statement shows the financial position of a company at a specific point in time?
If beginning retained earnings is $50,000, net income is $20,000, and dividends paid are $10,000, what is the ending retained earnings?
If beginning retained earnings is $50,000, net income is $20,000, and dividends paid are $10,000, what is the ending retained earnings?
Which financial statement reports a company's financial performance over a period of time?
Which financial statement reports a company's financial performance over a period of time?
Which activity is classified as a financing activity on the statement of cash flows?
Which activity is classified as a financing activity on the statement of cash flows?
If total assets are $100,000 and total liabilities are $60,000, what is the amount of stockholders' equity?
If total assets are $100,000 and total liabilities are $60,000, what is the amount of stockholders' equity?
Which of the following best describes the purpose of the notes to the financial statements?
Which of the following best describes the purpose of the notes to the financial statements?
A company purchases equipment with cash. What is the effect on the statement of cash flows?
A company purchases equipment with cash. What is the effect on the statement of cash flows?
What is the relationship between the income statement and the statement of stockholders' equity?
What is the relationship between the income statement and the statement of stockholders' equity?
A company provides services to a customer on account. How does this transaction affect the financial statements?
A company provides services to a customer on account. How does this transaction affect the financial statements?
What is the primary responsibility of management regarding financial statements?
What is the primary responsibility of management regarding financial statements?
Which of the following cash transactions would be classified as a financing activity?
Which of the following cash transactions would be classified as a financing activity?
In a statement of cash flows, which section would the cash paid to workers be categorized under?
In a statement of cash flows, which section would the cash paid to workers be categorized under?
If Lincoln Trade had a net loss for the year, how would this affect the statement of cash flows, assuming the indirect method is used?
If Lincoln Trade had a net loss for the year, how would this affect the statement of cash flows, assuming the indirect method is used?
Lincoln Trade had a beginning cash balance of $4,000 and a net increase in cash of $43,000. What is the cash balance at the end of the year?
Lincoln Trade had a beginning cash balance of $4,000 and a net increase in cash of $43,000. What is the cash balance at the end of the year?
Which of the following transactions is classified as an investing activity?
Which of the following transactions is classified as an investing activity?
How does the payment of dividends to stockholders affect the statement of cash flows?
How does the payment of dividends to stockholders affect the statement of cash flows?
What is the primary purpose of the statement of cash flows?
What is the primary purpose of the statement of cash flows?
If a company uses the indirect method for the statement of cash flows, how is depreciation expense handled?
If a company uses the indirect method for the statement of cash flows, how is depreciation expense handled?
Which of the following describes the correct relationship between the income statement, balance sheet, and statement of stockholders' equity regarding retained earnings (RE)?
Which of the following describes the correct relationship between the income statement, balance sheet, and statement of stockholders' equity regarding retained earnings (RE)?
A company issues new shares of stock. How does this transaction impact the accounting equation (Assets = Liabilities + Stockholders' Equity)?
A company issues new shares of stock. How does this transaction impact the accounting equation (Assets = Liabilities + Stockholders' Equity)?
How would receiving cash for services performed immediately impact the accounting equation?
How would receiving cash for services performed immediately impact the accounting equation?
A company purchases equipment using cash. What is the impact on the accounting equation?
A company purchases equipment using cash. What is the impact on the accounting equation?
If a company declares and pays a cash dividend, what is the effect on the accounting equation?
If a company declares and pays a cash dividend, what is the effect on the accounting equation?
A company borrows money from a bank and signs a note payable. What is the immediate impact on the accounting equation?
A company borrows money from a bank and signs a note payable. What is the immediate impact on the accounting equation?
A business purchases inventory on credit. What is the effect on the accounting equation?
A business purchases inventory on credit. What is the effect on the accounting equation?
Flashcards
Stockholders' Equity (SE)
Stockholders' Equity (SE)
Represents the owners' stake in a company, arising from common stock and retained earnings.
Common Stock
Common Stock
The par value or stated value of shares issued to investors.
Retained Earnings
Retained Earnings
Accumulated profits of a company that have not been distributed as dividends.
Net Income
Net Income
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Dividends Declared
Dividends Declared
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Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP)
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Securities and Exchange Commission (SEC)
Securities and Exchange Commission (SEC)
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Financial Accounting Standards Board (FASB)
Financial Accounting Standards Board (FASB)
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Role of the Auditor
Role of the Auditor
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Relevance
Relevance
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Users of Accounting Information
Users of Accounting Information
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Purpose of Accounting
Purpose of Accounting
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Financing Activities
Financing Activities
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Investing Activities
Investing Activities
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Operating Activities
Operating Activities
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Financial Statements
Financial Statements
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Statement of Stockholders' Equity (SSE)
Statement of Stockholders' Equity (SSE)
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Assets (A)
Assets (A)
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Liabilities (L)
Liabilities (L)
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Accounting Equation
Accounting Equation
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Common Stock (CS)
Common Stock (CS)
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Retained Earnings (RE)
Retained Earnings (RE)
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A - L = SE
A - L = SE
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Statement of Cash Flows
Statement of Cash Flows
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Operating Activities (Cash Inflow)
Operating Activities (Cash Inflow)
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Financing Activities (Cash Inflow)
Financing Activities (Cash Inflow)
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Investing Activities (Cash Outflow)
Investing Activities (Cash Outflow)
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Operating Activities (Cash Outflow)
Operating Activities (Cash Outflow)
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Operating Activities (Cash Outflow)
Operating Activities (Cash Outflow)
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Investing Activities (Cash Outflow)
Investing Activities (Cash Outflow)
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Financing Activities (Cash Outflow)
Financing Activities (Cash Outflow)
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Assets = Liabilities + Equity
Assets = Liabilities + Equity
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Net Income (NI)
Net Income (NI)
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Beginning Retained Earnings (BRE)
Beginning Retained Earnings (BRE)
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Ending Retained Earnings (ERE)
Ending Retained Earnings (ERE)
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Issuance of Common Stock (ICS)
Issuance of Common Stock (ICS)
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Dividends (DIV)
Dividends (DIV)
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Balance Sheet
Balance Sheet
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Income Statement
Income Statement
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Statement of Stockholders' Equity
Statement of Stockholders' Equity
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Dividends
Dividends
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Assets
Assets
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Liabilities
Liabilities
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Stockholders' Equity
Stockholders' Equity
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Accounts Payable
Accounts Payable
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Notes Payable
Notes Payable
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Management's Discussion and Analysis (MD&A)
Management's Discussion and Analysis (MD&A)
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Notes to the Financial Statements
Notes to the Financial Statements
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Study Notes
- Accounting serves as a measurement or communication process.
- It gauges a company's activities and broadcasts them.
- It is important to know who uses accounting information.
Business Activities Measured
- Financing involves creditors and owners.
- Investing deals with long-term assets.
- Operating includes revenue, expenses, and the company's primary operations.
Forms of Business Organizations
- Sole proprietorships, partnerships, and corporations are all forms of business organizations.
Communicating Through Financial Statements
- Financial statements summarize business activities.
- The financial statements are:
- Income Statement (IS)
- Statement of Stockholders' Equity (SSE)
- Balance Sheet (BS)
- Statement of Cash Flows (SCF)
The Income Statement (IS)
- A financial statement heading includes the name of the entity, the name of the financial statement itself, the date, the period it covers, and the unit of measure.
- Revenues (R) can be sales or service revenue.
- Expenses (E) can be salaries or rent.
- Net Income (NI) is calculated as Revenue (R) – Expenses (E).
The Statement of Stockholders' Equity (SSE)
- The SSE demonstrates the increases/decreases in stockholders' equity accounts over time.
- Stockholders' Equity (SE) stems from Common Stock (CS) and Retained Earnings (RE).
- Common stock is the amount invested by owners.
- Retained earnings are accumulated earnings minus distributions to owners.
- The formula is SE = CS + RE.
The Balance Sheet (BS)
- Also known as the Statement of Financial Position.
- Assets can be economic resources expected to provide future benefits, owned by the company due to past transactions, such as cash, equipment, and buildings.
- Liabilities (L) are what the company owes as a result of past transactions and are future claims on economic resources like notes or salaries payable.
- Stockholders' Equity (SE) consists of common stock (CS) and retained earnings (RE).
- The accounting equation is: Assets = Liabilities + Stockholders' Equity, (A = L + SE).
Statement of Cash Flows
- Categories include:
- Operating Activities
- Investing Activities
- Financing Activities
- Change in Cash is found by combining the three categories of net cash inflows and outflows.
Links Among Financial Statements
- Cash flows from operating, investing, and financing activities, along with the changes in cash, beginning cash balance, and ending cash balance are all part of the Statement of Cash Flows.
Other Information Reported to Outsiders
- Management is responsible for the financial statements provided in the Management & Discussion Analysis (MD&A).
- Notes accompanying financial statements include descriptions of accounting rules, details about line items, and disclosures about unlisted items.
Financial Accounting
- Financial Accounting relies on Generally Accepted Accounting Principles (GAAP).
- The Securities and Exchange Commission (SEC) enforces the rules.
- The Financial Accounting Standards Board (FASB) makes the rules delegated by the SEC.
- The International Accounting Standards Board (IASB) also exists.
- Management is responsible for financial statements.
- Auditors provide a seal of approval.
- The Public Company Accounting Oversight Board (PCAOB) audits the auditors.
- The primary objective for financial accounting is to provide useful information to investors and creditors for making rational investment decisions.
Conceptual Framework
- This framework is the foundation for developing accounting standards.
Qualitative Characteristics
- Decision Usefulness: Relevance i.e predictive/confirmatory value, materiality.
- Faithful Representation (Reliability): completeness, neutrality, freedom of error.
Enhancing Qualitative Characteristics
- Comparability, consistency, verifiability, timeliness, and understandability are all enhancements.
- Cost Constraint: Cost-benefit aspect.
- Consideration of industry practices.
Underlying Assumptions
- Economic Entity ("Separate Entity") and ongoing concern.
- Monetary Unit Assumption—inflation not factored.
- Periodicity Assumption.
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Description
Accounting measures and communicates a company's activities to various users. It involves financing, investing, and operating activities. Financial statements like the Income Statement, Balance Sheet, and Statement of Cash Flows summarize these activities for different forms of business organizations.
