Financial Accounting Quiz

Overview of Financial Accounting

• Financial accounting is a branch of accounting that involves the preparation of financial statements for public use.
• The Generally Accepted Accounting Principles (GAAP) is a standard framework of guidelines for financial accounting in any given jurisdiction.
• The International Financial Reporting Standards (IFRS) is a set of accounting standards that state how particular types of transactions and other events should be reported in financial statements.
• Financial accountancy and financial reporting are often used as synonyms.
• Financial accounting serves the purpose of providing accounting information to people outside the organization or not involved in the day-to-day running of the company.
• Managerial accounting provides accounting information to help managers make decisions to manage the business.
• The objective of financial reporting is to provide financial information that is useful to present and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.
• Financial statements include the statement of cash flows, statement of financial performance (income statement, profit & loss statement, or statement of operations), balance sheet, and statement of retained earnings (statement of changes in equity).
• The balance sheet is the financial statement showing a firm's assets, liabilities, and equity (capital) at a set point in time.
• Financial accountants produce financial statements based on accounting standards set by a respective country's national standard setter or IFRS.
• The accounting equation (Assets = Liabilities + Owners' Equity) and financial statements are the main topics of financial accounting.
• Asset, expense, and dividend accounts have normal debit balances, while liability, revenue, and equity accounts have normal credit balances.