Financial Statements in Accounting

Questions and Answers

Which of the following is NOT a primary financial statement?

Balance sheet

Statement of cash flows

Income statement

Revenue report (correct)

An income statement shows the company's revenues and expenses for a specific period.

True

What is the result called when revenues exceed expenses?

Net income

If expenses are greater than revenues, the company experiences a ________.

net loss Signup and view all the answers

What was the total service revenue for Eagle Soccer Academy for December 2021?

$7,200 Signup and view all the answers

Match the financial statement with its purpose:

Income Statement = Reports revenues and expenses Statement of cash flows = Shows cash inflows and outflows Balance Sheet = Displays assets, liabilities, and equity Statement of stockholders' equity = Details changes in equity Signup and view all the answers

Which expense was the highest for Eagle Soccer Academy in December 2021?

Salaries expense Signup and view all the answers

What is the total amount of expenses for Eagle Soccer Academy?

$6,000 Signup and view all the answers

Which account would appear in a company's income statement?

Rent Expense Signup and view all the answers

The balance sheet reflects the financial performance of a company over an interval of time.

False Signup and view all the answers

What type of cash flows involve cash transactions for the purchase and sale of investments and long-term assets?

Investing cash flows Signup and view all the answers

The balance sheet equation is: Assets = _______________________ + Stockholders' Equity.

Liabilities Signup and view all the answers

Which statement reports a company's revenues and expenses over an interval of time?

Income Statement Signup and view all the answers

Dividends would appear in a company's balance sheet.

False Signup and view all the answers

Match the following cash flow types with their descriptions.

Operating Cash Flows = Cash transactions involving revenue and expense Investing Cash Flows = Cash transactions for the purchase and sale of investments and long-term assets Financing Cash Flows = Cash transactions with lenders and stockholders Signup and view all the answers

What type of financial statement reports a company's cash receipts and cash payments over an interval of time?

Statement of Cash Flows Signup and view all the answers

What is the primary role of auditors in a company?

To express a professional opinion on financial statements Signup and view all the answers

Auditors are employees of the company they are auditing.

False Signup and view all the answers

What is the purpose of an auditor's report?

To express an opinion on the financial statements based on the audit Signup and view all the answers

Auditors help ensure that management has in fact ________________ GAAP in preparing the company's financial statements.

appropriately applied Signup and view all the answers

Match the following components of an auditor's report with their descriptions:

Consolidated balance sheets = Provides a snapshot of the company's financial position Consolidated statements of income = Shows the company's revenues and expenses over a period of time Consolidated statements of cash flows = Displays the company's inflows and outflows of cash Signup and view all the answers

What is the benefit of an auditor's report to investors and creditors?

It adds credibility to the financial statements, informing their decisions Signup and view all the answers

The auditor's report is the responsibility of the company's management.

False Signup and view all the answers

What is the significance of GAAP in financial statement preparation?

GAAP ensures that financial statements are prepared in a consistent and transparent manner Signup and view all the answers

What is the role of financial accounting in the decision-making process?

To provide useful information to help investors and creditors make good decisions Signup and view all the answers

The management discussion and analysis (MD&A) section is not a part of the annual report.

False Signup and view all the answers

What is the purpose of note disclosures to the financial statements?

To offer additional information to explain the information presented in the financial statements or to provide additional information. Signup and view all the answers

Accounting serves an important role in a prosperous society by measuring _______________________ and communicating useful information.

economic activity Signup and view all the answers

What is the result of transactions that affect revenues or expenses reported in the income statement?

They ultimately affect the balance sheet through the balance in retained earnings Signup and view all the answers

Match the financial statement components with their descriptions:

Financial statements = A key component of a company's annual report Management's discussion and analysis = Management's views on significant events and trends Note disclosures = Additional information to explain financial statements or provide more information Signup and view all the answers

The balance sheet reflects the financial performance of a company over a specific period of time.

False Signup and view all the answers

What skills are required in the practice of accounting?

judgment and critical thinking skills Signup and view all the answers

Which of the following is a fundamental qualitative characteristic of useful financial information?

Materiality Signup and view all the answers

Faithful representation is one of the enhancing qualitative characteristics.

False Signup and view all the answers

What is the overriding objective of qualitative characteristics in accounting?

Usefulness Signup and view all the answers

The __________ constraint ensures that the benefits of financial reporting information exceed the costs of providing it.

cost Signup and view all the answers

Match each of the enhancing qualitative characteristics with its description.

Comparability = Allows users to identify similarities and differences among financial statements Timeliness = Information should be available to decision-makers in time to be capable of influencing their decisions Verifiability = Different knowledgeable and independent observers can reach consensus that the information is faithfully represented Understandability = Classifying, characterizing, and presenting information clearly and concisely makes it understandable for users Signup and view all the answers

Which component enhances the faithful representation of financial information?

Freedom from error Signup and view all the answers

Relevance and faithful representation are the two fundamental qualitative characteristics of useful financial information.

True Signup and view all the answers

Name one of the underlying assumptions in accounting.

Going concern Signup and view all the answers

Study Notes

Communicating through Financial Statements

Financial statements are periodic reports published by a company to provide information to external users.
Primary financial statements include: • Income statement • Statement of stockholders' equity • Balance sheet • Statement of cash flows

Income Statement

Reports a company's revenues and expenses over an interval of time.
If revenues are greater than expenses, the result is net income; if revenues are less than expenses, the result is a net loss.
Compares revenues and expenses for the current period to assess a company's ability to earn a profit.

Example of Income Statement

Eagle Soccer Academy's income statement for the month ended December 31, 2021: • Revenues: 7,200•Expenses:7,200 • Expenses: 7,200•Expenses:6,000 • Net income: $1,200

Balance Sheet

Reflects a company's financial position on a particular date.
Shows that resources (Assets) equal claims to resources (Liabilities + Stockholders' Equity).

Statement of Cash Flows

Measures activities involving cash receipts and cash payments over an interval of time.
Classifies cash flows into three categories: • Operating cash flows (involving revenue and expense) • Investing cash flows (for the purchase and sale of investments and long-term assets) • Financing cash flows (with lenders and stockholders)

Other Information Reported to Outsiders

Annual report includes financial statements, management's discussion and analysis (MD&A), and note disclosures to the financial statements.
MD&A provides management's views on significant events, trends, and uncertainties.
Note disclosures offer additional information to explain the information presented in the financial statements.

Auditors

Trained individuals hired by a company as an independent party to express a professional opinion on the extent to which financial statements are prepared in compliance with GAAP and are free of material misstatement.
Help ensure that management has appropriately applied GAAP in preparing the company's financial statements.

Conceptual Framework

Fundamental qualitative characteristics: • Relevance • Faithful representation • Comparability • Verifiability • Timeliness • Understandability
Enhancing qualitative characteristics: • Predictive value • Confirmatory value • Neutrality • Completeness
Cost constraint

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Description

Financial statements are periodic reports published by a company to provide information to external users. These statements include income statements, balance sheets, and statements of cash flows.

Financial Statements in Accounting

Questions and Answers

Which of the following is NOT a primary financial statement?

An income statement shows the company's revenues and expenses for a specific period.

What is the result called when revenues exceed expenses?

If expenses are greater than revenues, the company experiences a ________.

What was the total service revenue for Eagle Soccer Academy for December 2021?

Match the financial statement with its purpose:

Which expense was the highest for Eagle Soccer Academy in December 2021?

What is the total amount of expenses for Eagle Soccer Academy?

Which account would appear in a company's income statement?

The balance sheet reflects the financial performance of a company over an interval of time.

What type of cash flows involve cash transactions for the purchase and sale of investments and long-term assets?

The balance sheet equation is: Assets = _______________________ + Stockholders' Equity.

Which statement reports a company's revenues and expenses over an interval of time?

Dividends would appear in a company's balance sheet.

Match the following cash flow types with their descriptions.

What type of financial statement reports a company's cash receipts and cash payments over an interval of time?

What is the primary role of auditors in a company?

Auditors are employees of the company they are auditing.

What is the purpose of an auditor's report?

Auditors help ensure that management has in fact ________________ GAAP in preparing the company's financial statements.

Match the following components of an auditor's report with their descriptions:

What is the benefit of an auditor's report to investors and creditors?

The auditor's report is the responsibility of the company's management.

What is the significance of GAAP in financial statement preparation?

What is the role of financial accounting in the decision-making process?

The management discussion and analysis (MD&A) section is not a part of the annual report.

What is the purpose of note disclosures to the financial statements?

Accounting serves an important role in a prosperous society by measuring _______________________ and communicating useful information.

What is the result of transactions that affect revenues or expenses reported in the income statement?

Match the financial statement components with their descriptions:

The balance sheet reflects the financial performance of a company over a specific period of time.

What skills are required in the practice of accounting?

Which of the following is a fundamental qualitative characteristic of useful financial information?

Faithful representation is one of the enhancing qualitative characteristics.

What is the overriding objective of qualitative characteristics in accounting?

The __________ constraint ensures that the benefits of financial reporting information exceed the costs of providing it.

Match each of the enhancing qualitative characteristics with its description.

Which component enhances the faithful representation of financial information?

Relevance and faithful representation are the two fundamental qualitative characteristics of useful financial information.

Name one of the underlying assumptions in accounting.

Study Notes

Communicating through Financial Statements

Income Statement

Example of Income Statement

Balance Sheet

Statement of Cash Flows

Other Information Reported to Outsiders

Auditors

Conceptual Framework

Studying That Suits You

Description

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