Financial Statements Overview

Questions and Answers

Match each financial statement item with its financial statement: balance sheet, income statement, retained earnings statement, or statement of cash flows.

Liabilities = Balance Sheet Net change in cash = Statement of Cash Flows Assets = Balance Sheet Revenue = Income Statement Cash flow from operating activities = Statement of Cash Flows Expenses = Income Statement Stockholders' equity = Balance Sheet Dividends = Retained Earnings Statement

Indicate in which part of the statement of cash flows each of the items would appear: operating activities (O), investing activities (I), or financing activities (F).

Cash received from customers = O Cash paid for dividends = F Cash received from a bank loan = F Cash paid to suppliers = O Cash paid to purchase equipment = I

Match each description with the location in the annual report in which it may be found.

An integral part of the financial statements that helps fulfill the accountant's responsibility for full disclosure of all relevant information = Notes to the Financial Statements An opinion as to whether the financial statements fairly present the financial position and result of operations of the company = Report of Independent Accountants A discussion and explanation of various items reported in the financial statements = Management's Discussion and Analysis Clarification or expansion upon the information presented in the financial statements = Notes to the Financial Statements

Give the qualitative characteristic or constraint that is most applicable to each of the statements.

When financial information is free from error or bias, the information is said to possess this characteristic. = Faithful Representation Griffin Company uses the same depreciation method from period to period. = Consistency A trash can that is purchased for $10 is expensed even though it will be used for many years. = Materiality Signup and view all the answers

Give the accounting assumption that is most applicable to each of the statements.

Pewterschmidt Company values its inventory reported in the financial statements in terms of dollars instead of units. = Monetary Unit Property, plant, and equipment is recorded at cost (minus any accumulated depreciation) instead of liquidation value. = Going Concern The accounting records of a company are kept separate from its owners. = Economic Entity The accountant assigns revenues and expenses to specific years before preparing the financial statements. = Time Period Signup and view all the answers

Give the accounting principle that is most applicable to each of the statements.

Quagmire Company recognizes revenue when the goods are delivered to a customer, even though cash will not be collected for 30 days. = Revenue Recognition Inventory, recently damaged by a flood, is reported at the lower of its cost or market value. = Conservatism Land, located in a desirable location, is reported at the original acquisition price, even though its value has increased by over 100%. = Historical Cost The cost paid for a delivery truck is recorded as an asset and expensed over the next 5 years as it is used to help generate revenue. = Matching Signup and view all the answers

Study Notes

Financial Statement Items and Their Locations

Balance Sheet includes assets, liabilities, and stockholders' equity.
Income Statement reflects revenues and expenses.
Statement of Cash Flows reports net change in cash and cash flows from operating activities.
Retained Earnings Statement details dividends.

Statement of Cash Flows Activities

Operating Activities encompass cash received from customers and cash paid to suppliers.
Investing Activities include cash paid for purchasing equipment.
Financing Activities feature cash paid for dividends and cash received from a bank loan.

Annual Report Components

Notes to Financial Statements provide integral details and clarification, aiding in full disclosure.
Report of Independent Accountants presents an opinion on the fairness of financial statements.
Management's Discussion and Analysis offers insights and explanations on financial items.

Qualitative Characteristics and Constraints

Faithful Representation indicates reliability in financial information, free from error or bias.
Consistency ensures that the same accounting methods are employed in successive periods.
Materiality allows for expensing costs of low-value items, despite their long-term usage.

Accounting Assumptions

Monetary Unit principle values inventory in dollars rather than physical units.
Going Concern assumption records assets at cost rather than their potential liquidation value.
Economic Entity principle separates a company’s financial activities from its owners.
Time Period assumption allocates revenues and expenses to specific reporting periods.

Accounting Principles

Revenue Recognition states that revenue is recognized upon delivery of goods to customers, regardless of cash collection timing.
Conservatism principle mandates reporting lower of cost or market value for damaged inventory.
Historical Cost principle maintains the original acquisition price for appreciating assets like land.
Matching Principle records expenses, like for a delivery truck, over the period they generate revenue.

Description

This quiz covers the various components of financial statements, including balance sheets, income statements, and cash flow statements. It also delves into the activities reflected in these statements and the essential parts of an annual report. Test your knowledge on financial reporting and analysis.