Financial Reporting Management Quiz
48 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is one reason managers handle earnings and dividends?

  • To ensure accuracy in accounting (correct)
  • To manage daily cash flows
  • To prepare tax returns
  • To ensure bank reconciliation

    • Stock issuance adjustments happen monthly.

    False

    What do managers need to ensure about liabilities in financial statements?

    That liabilities are properly classified as current or non-current.

    The calculations around allowances, depreciation, accruals, and deferred revenue typically occur at the end of the ______.

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

    Match the following responsibilities with their importance:

    <p>Earnings and dividends = Accuracy in accounting Stock issuance = Correct documentation of transactions Liabilities classification = Proper reporting Disclosure requirements = Compliance with accounting standards</p> Signup and view all the answers

    Why is it important for managers to have knowledge and experience in financial reporting?

    <p>To ensure accuracy and compliance with accounting standards</p> Signup and view all the answers

    Bookkeepers are responsible for more complex adjustments in accounting.

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

    What is the key principle for cash and cash equivalents in financial reporting?

    <p>Reliability and Full Disclosure</p> Signup and view all the answers

    What does the term 'current assets' refer to?

    <p>Assets that can be converted to cash within 12 months</p> Signup and view all the answers

    The balance sheet for Crabcake Inc. shows an ending cash balance of $19 million as of December 2020.

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

    What is the principle related to cash and cash equivalents that requires the information to be verifiable?

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

    The principles of US GAAP include reliability, _____, historical cost, full disclosure, and conservatism.

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

    Match the financial terms with their descriptions:

    <p>Cash and cash equivalents = $19 million as of December 2020 Short-term investments = Money market accounts and CDs Reliability = Verifiable by bank statements Full disclosure = Transparency of financial information</p> Signup and view all the answers

    Which principle emphasizes that information should be confirmed by an independent source?

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

    Full disclosure is not an important principle in preparing financial statements.

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

    What is an example of a short-term investment?

    <p>Money market accounts</p> Signup and view all the answers

    When is the Allowance for Doubtful Accounts calculation typically performed?

    <p>Monthly or Quarterly</p> Signup and view all the answers

    Managers do not need to have experience to estimate bad debts.

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

    What method is commonly used for calculating depreciation?

    <p>Straight-line or accelerated</p> Signup and view all the answers

    ____________ adjustments are often made at the end of the month for long-term contracts.

    <p>Deferred Revenue</p> Signup and view all the answers

    Which of the following is true regarding inventory adjustments?

    <p>They involve determining the lower of cost or net realizable value.</p> Signup and view all the answers

    Interest accrual for debt is usually adjusted annually.

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

    When are retained earnings adjusted?

    <p>After the monthly closing process and calculation of net income.</p> Signup and view all the answers

    Match the following calculations with when they are typically performed:

    <p>Allowance for Doubtful Accounts = Monthly or Quarterly Depreciation = Monthly Interest Accrual for Debt = Monthly Deferred Revenue = End of the Month</p> Signup and view all the answers

    What should you compare to check for errors in the trial balance?

    <p>Total debits and total credits</p> Signup and view all the answers

    The subsidiary ledgers should not match the corresponding GL balances.

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

    What should you investigate if you find unusual transactions?

    <p>Possible errors or fraudulent activity</p> Signup and view all the answers

    To ensure accuracy, journal entries must be properly _____ in the GL.

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

    Match each step with its purpose:

    <p>Review entries = Identify unusual patterns Check cut-off dates = Ensure correct accounting period Cross-check journal entries = Confirm accuracy with documents Reconcile subsidiary ledgers = Match GL balances</p> Signup and view all the answers

    What might an out-of-balance account in the trial balance indicate?

    <p>A potential posting error</p> Signup and view all the answers

    Cut-off errors occur when transactions are recorded in the wrong accounting period.

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

    What should be ensured regarding transactions for effective financial reporting?

    <p>They are recorded in the correct accounting period</p> Signup and view all the answers

    What should a company do with excess cash when it does not know what to do with it?

    <p>Invest it in equities</p> Signup and view all the answers

    Equity investments must be disclosed in the company's investment policy.

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

    What type of statements can be used to verify equity investments?

    <p>Custodian statements</p> Signup and view all the answers

    A company must accrue any interest that is owed but not yet __________.

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

    Match the principles with their descriptions:

    <p>Reliability = Information must be verifiable Accrual = Record earned income not yet received Full Disclosure = Declare investment risks Investment Policy = Strategy for managing excess cash</p> Signup and view all the answers

    What is an example of a conservative investment for a smaller company?

    <p>Money market funds</p> Signup and view all the answers

    Short term debt must be verified through internal records only.

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

    Explain the accrual principle in relation to dividends.

    <p>Accrue any dividends that are declared but not yet received.</p> Signup and view all the answers

    What principle requires the disclosure of terms of payments and loan duration to investors?

    <p>Full disclosure principle</p> Signup and view all the answers

    Accrued liabilities are recorded only when the cash payment has been made.

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

    What must be disclosed if a vendor makes up 20% of accounts payable?

    <p>Concentration of accounts payable</p> Signup and view all the answers

    The difference between __________ and cash-based accounting is that accrual records liabilities when expenses are probable, rather than when cash is paid.

    <p>accrual accounting</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Accounts Payable = Liability recorded for expenses incurred but not yet paid Accrued Liabilities = Expenses that are probable and can be estimated Full Disclosure Principle = Requirement to disclose all relevant financial information Vendor Concentration = Risk associated with reliance on a single supplier</p> Signup and view all the answers

    What is the significance of the full disclosure principle in terms of accounts payable?

    <p>It informs investors of risks associated with supplier reliance.</p> Signup and view all the answers

    The cash-based accounting method records expenses when they are incurred regardless of cash flow.

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

    What must evidence support when recording accrued liabilities?

    <p>The probable nature and estimated value of the liabilities</p> Signup and view all the answers

    Study Notes

    Balance Sheet Categories

    • Assets: Represents a company's resources.
    • Current Assets: Items expected to be converted into cash within a year.
      • Cash and Cash Equivalents: Bank balances, cash, and highly liquid investments. Calculated by reporting the balance.
      • Accounts Receivable: Money owed by customers. Adjusted for doubtful accounts (estimate of bad debts).
      • Inventory: Goods available for sale.Adjusted for obsolescence or expiration, recorded at the lower of cost or net realizable value.
    • Non-Current Assets: Items not expected to be converted into cash within a year.
      • Property, Plant, and Equipment (PP&E): Tangible fixed assets (land, buildings, machinery). Calculated by subtracting depreciation from historical cost and considering impairments.
      • Investments: Stocks, bonds, or other equity investments. Value is recorded at cost or fair market value, depending on the type of investment; interest or dividends are accrued if necessary.
      • Equity and Other Investments: Stocks, bonds, and other equity-related investments.
    • Liabilities: Represents a company's obligations.
    • Current Liabilities: Items due within a year.
      • Short-Term Debt: Loans and obligations within the year. Calculated by accruing interest expenses (if not yet paid).
      • Accounts Payable: Money owed to vendors for goods/services. No calculation required, just report outstanding balances.
      • Accrued Liabilities: Expenses incurred, but not yet paid (e.g., salaries, taxes).

    Stockholders' Equity

    • Common Stock: Value of shares issued; recorded at par value. Calculated by multiplying the par value per share by the number of shares.
    • Additional Paid-In Capital: Amount paid to investors exceeding the par value. Calculated by determining the excess paid above the par value.
    • Retained Earnings: Cumulative net income that's been retained. Calculated by adding the beginning retained earnings, net income, and subtracting any dividends paid.

    Calculations and Formulas

    • Allowance for Doubtful Accounts (Accounts Receivable): Formula: Allowance for Doubtful Accounts = Estimated Percentage of Uncollectible Receivables x Accounts Receivable Balance. Explanation: Estimate a percentage of receivables that may be uncollectible, based on past experience or an aging analysis.
    • Inventory Adjustments (Lower of Cost or Net Realizable Value): Formula: Inventory Value = min (Cost of Inventory, or Net Realizable Value). Explanation: If the market value of inventory drops below its cost, the inventory is recorded at the lower value.
    • Straight-Line Depreciation: Formula: Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life of the Asset.Explanation: Calculates depreciation evenly over the asset's useful life.
    • Double-Declining Balance Depreciation: Formula: Depreciation Expense = 2 x (1/Useful Life) x Book Value at Beginning of Period Explanation: Calculates depreciation by applying a rate twice as high as the straight-line rate, accelerating the write-off of the asset.
    • Interest Accrual for Debt: Formula: Interest Accrued = Principal x Interest Rate x Time Period/360. Explanation: Calculates interest expense that's been incurred but not paid yet.

    Balance Sheet Breakdown and Key Principles

    • Cash and Cash Equivalents: Verify balance through bank statements. Disclose restricted cash.
    • Accounts Receivable: Confirm balances with customers, estimate doubtful accounts. Disclose large customer concentrations and at-risk accounts.
    • Inventory: Verify via independent count; record at lower of cost or market value; disclose inventory risks.
    • Property, Plant, and Equipment (PP&E): Verify via documentation; record at historical cost; disclose depreciation method and impairments.
    • Equity and Other Investments: Verify balances with custodian statements; accrue interest/dividends; disclose investment policy.
    • Short-Term Debt: Confirm with lender; accrue interest payable; disclose loan terms and conditions.
    • Accounts Payable: Verify with vendor invoices; accrue liabilities; disclose significant vendor concentrations.
    • Accrued Liabilities: Calculate based on the balance sheet equation.
    • Deferred Revenue: Support with contracts and schedules; accrue when obligations are met; disclose significant contracts.
    • Long-Term Debt: Verify balances with lender statements; accrue interest owed; disclose loan terms and payment schedule.
    • Stockholders' Equity: Trace stock issuance, par value, and paid-in capital; disclose retained earnings.

    Performance Task Using Balance Sheet

    • Compare Debits and Credits: Ensure debits equal credits in the General Ledger (GL). Check individual transactions for potential errors.
    • Verify Account Balances: Match GL balances to financial report balances.
    • Check for Missing/Duplicated Entries: Identify any missing or duplicated entries in the GL.
    • Reconcile Bank/Credit Card Statements: Compare bank reconciliations to the GL; account for outstanding checks, deposits in transit and timing differences.
    • Review Adjustments to Depreciation and Accruals: Ensure consistency of depreciation and accrual schedules and amounts.
    • Check the Trial Balance: Verify that total debit and credit entries are equal. Identify any out-of-balance accounts.
    • Reconcile Subsidiary Ledgers: Ensure subsidiary (e.g., accounts receivable) balances match the corresponding GL balances.
    • Look for Unusual Transactions: Identify unusual or out-of-place transactions or those inconsistent with typical business operations.
    • Check Timing Issues: Ensure transactions are recorded in the correct accounting period.
    • Verify Posting of Journal Entries: Ensure journal entries are posted accurately and supported by appropriate documentation.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    GAAP Balance Sheet PDF

    Description

    Test your knowledge on the essentials of financial reporting management. This quiz covers topics including earnings handling, liabilities, cash equivalents, and key GAAP principles. Perfect for financial professionals looking to enhance their expertise!

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser