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ACCT 212 Week 4 Midterm Exam answered

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Course
ACCT 212 Financial Accounting (ACCT212)

Institution
Devry University-Chicago

Question: The Accounting Equation is … to develop the organization’s financial reports. (1) Describe what liabilities value would be if Assets are $50,000 and Owners’ Equity is $25,000 by showing the Accounting Equation (10 points) and (2) provide an example of two liability accounts. (10 poi...

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acct 212 week 4 midterm exam
he accounting equation is … to develop the organization’s financial reports 1 describe what liabilities value would be if assets are 50
000 and owners’ equity is

Institution
Devry University-Chicago
Course
ACCT 212 Financial Accounting (ACCT212)

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ACCT-212-8

Week 4-MidTerm

Week 4: MidTerm

(TCO 1) The Accounting Equation is used to develop the organization's financial reports.

(1) Describe what liabilities value would be if Assets are $50,000 and Owners' Equity is

$25,000 by showing the Accounting Equation (10 points) and (2) provide an example of two

liability accounts. (10 points)

Answer Midterm #1

Assets = Liabilities + Stockholders’ Equity

$50,000 $25,000 $25,000

Total $50,000 $25,000 $25,000

2 examples of liability accounts:

1) Accounts Payable
2) Unearned Service Revenue

(TCO 1) The financial statements present a company to the public in financial

terms. (1) Which financial statement should be prepared first and why (10 points),

and (2) explain what information this financial statement provides. (10 points)
Answer: ”Once the adjusting entries have been made or entered into a worksheet, the

financial statements can be prepared using information from the ledger accounts.

Because some of the financial statements use data from other statements” as retrieved

from: http://www.netmba.com/accounting/fin/process/statements/ .

I also have retrieved information from the text in Chapter 1:

1st Prepare: Income statement (sometimes known as the statement of operations)

Page | 1

, 2nd Prepare: Statement of retained earnings (usually included in statement of stockholders’

equity)

3rd Prepare: Balance sheet (sometimes known as the statement of financial position)

4th Prepare: Statement of cash flows

The reason for this order is that per the text “Financial statements are the business documents

that companies use to report the results of their activities to various user groups, which can

include managers, investors, creditors, and regulatory agencies.” Reference: Harrison, W.T. Jr.,

Horngren, C.T. & Thomas, C.W. (2013). Financial Accounting. (9th ed.). Upper Saddle River,

NJ: Pearson (Pg 2). The regulatory agency that governs how accounting is accepted in the U.S. is

G.A.A.P. (generally accepted accounting principles). The financial statements also have balances

that flow into the next statement as a continuation.

The information that financial statements provide is a health check on a company for internal and

external reasons. It lays out how the company is doing in regards to income, sales, profits, losses,

their cash flow and is a method of communicating the financial well-being of a company. This is

essential for drawing a line in the sand so to speak and each month have documentation of the

finances. As the article in www.inc.com states “They include standard reports like the balance

sheet, income or profit and loss statements, and cash flow statement. They stand as one of the

more essential components of business information, and as the principal method of

communicating financial information about an entity to outside parties. In a technical sense,

financial statements are a summation of the financial position of an entity at a given point in

time. Generally, financial statements are designed to meet the needs of many diverse users,

particularly present and potential owners and creditors. Financial statements result from

simplifying, condensing, and aggregating masses of data obtained primarily from a company's

Page | 2

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