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Questions and Answers
Which of the following is NOT a primary financial statement?
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.
An income statement shows the company's revenues and expenses for a specific period.
True (A)
What is the result called when revenues exceed expenses?
What is the result called when revenues exceed expenses?
Net income
If expenses are greater than revenues, the company experiences a ________.
If expenses are greater than revenues, the company experiences a ________.
What was the total service revenue for Eagle Soccer Academy for December 2021?
What was the total service revenue for Eagle Soccer Academy for December 2021?
Match the financial statement with its purpose:
Match the financial statement with its purpose:
Which expense was the highest for Eagle Soccer Academy in December 2021?
Which expense was the highest for Eagle Soccer Academy in December 2021?
What is the total amount of expenses for Eagle Soccer Academy?
What is the total amount of expenses for Eagle Soccer Academy?
Which account would appear in a company's income statement?
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.
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?
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.
The balance sheet equation is: Assets = _______________________ + Stockholders' Equity.
Which statement reports a company's revenues and expenses over an interval of time?
Which statement reports a company's revenues and expenses over an interval of time?
Dividends would appear in a company's balance sheet.
Dividends would appear in a company's balance sheet.
Match the following cash flow types with their descriptions.
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 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?
What is the primary role of auditors in a company?
Auditors are employees of the company they are auditing.
Auditors are employees of the company they are auditing.
What is the purpose of an auditor's report?
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.
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:
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?
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.
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 significance of GAAP in financial statement preparation?
What is the role of financial accounting in the decision-making process?
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.
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?
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.
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?
What is the result of transactions that affect revenues or expenses reported in the income statement?
Match the financial statement components with their descriptions:
Match the financial statement components with their descriptions:
The balance sheet reflects the financial performance of a company over a specific period of time.
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?
What skills are required in the practice of accounting?
Which of the following is a fundamental qualitative characteristic of useful financial information?
Which of the following is a fundamental qualitative characteristic of useful financial information?
Faithful representation is one of the enhancing qualitative characteristics.
Faithful representation is one of the enhancing qualitative characteristics.
What is the overriding objective of qualitative characteristics in accounting?
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.
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.
Match each of the enhancing qualitative characteristics with its description.
Which component enhances the faithful representation of financial information?
Which component enhances the faithful representation of financial information?
Relevance and faithful representation are the two fundamental qualitative characteristics of useful financial information.
Relevance and faithful representation are the two fundamental qualitative characteristics of useful financial information.
Name one of the underlying assumptions in accounting.
Name one of the underlying assumptions in accounting.
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.
