AFM 101 Final Exam With 100% Correct Answers 2023

Four financial statements in order - Correct answer-income statement, retained earnings statement, balance sheet, statement of cash flows Financial Accounting - Correct answer-For internal and external use Management Accounting - Correct answer-Only used internally General Accepted Accounting Principles (GAAP) - Correct answer-the common set of standards and procedures by which audited financial statements are prepared International Financial Reporting Standards (IFRS) - Correct answer-Used by public enterprise Proprietorship - Correct answer-A business owned by one person Partnership - Correct answer-A business in which two or more persons combine their assets and skills Corporation - Correct answer-A business that is owned by many shareholders, shareholders are not responsible for business Elements of the Balance Sheet - Correct answer-assets, liabilities, stockholders equity purpose of balance sheet - Correct answer-to report a company's financial position on a particular date Elements of the Income Statement - Correct answer-Total income, total expense Purpose of Income Statement - Correct answer-Show how the company performed during the year Purpose of statement of retained earnings - Correct answer-To explain changes in retained earnings over the year Accounting Equation - Correct answer-Assets = Liabilities + Stockholders' Equity Assets - Correct answer-resources owned by a business current assets - Correct answer-cash and other assets expected to be exchanged for cash or consumed within a year Non-current assets - Correct answer-Items owned by the business for more than one year ex. land, building Liabilities - Correct answer-financing provided by creditors Current Liabilities - Correct answer-liabilities due within a short time, usually within a year Non-current liabilities - Correct answer-value of debts of the business that will be payable after more than one year Shareholders' Equity - Correct answer-Financing provided by shareholders - Share capital/ common shares - Retained earnings Operating Activities - Correct answer-Main revenue producing activities of the company - interest and dividends received Investing Activities - Correct answer-Purchase and sale of long term assets sed to generate future income and cash - CF related to advances and loans made to other entities Financing Activities - Correct answer-Resulting in changes in size and composition of a company's equity and borrowing Notes to the financial statements - Correct answer-Notes clarify information presented in the financial statements and provide additional detail. Fundamental Qualitative Characteristics - Correct answer-1. Relevance 2. Faithful Representation Enhancing Qualitative Characteristics - Correct answer-1. Comparability 2. Verifiability 3. Timeliness 4. Understandability Going Concern Assumption - Correct answer-The assumption that the company will continue in operation for the foreseeable future. Separate Entity Assumption - Correct answer-states that business transactions are separate from the transactions of the owners Historical cost assumption - Correct answer-Assets recorded at purchase price stable monetary unit assumption - Correct answer-Dollar's purchasing power is stable over time Influences on business decisions - Correct answer--economical -legal -Ethical Asset Accounts - Correct answer-§ Cash § Accounts receivable § Notes receivable § Inventory § Prepaid expenses § Land § Building § Equipment, Furniture and Fixture Liabilities Accounts - Correct answer-§ Accounts payable § Accrued Liabilities § Loans Payable Shareholder's Equity Account - Correct answer-§ Share Capital § Retained Earnings § Dividends § Revenues § Expenses § Gains § Losses Expanded Accounting Equation - Correct answer-Assets = Liabilities + (Capital + Beg RE + Rev + Gaines - EXP - Losses - Dividends) business transaction - Correct answer-An economic event or condition that directly changes an entity's financial condition or directly affects its results of operations - accounting equation must hold - affects at least two accounts What does "on account" mean? - Correct answer-○ Performed service on account - AR increases ○ Collected on account - AR decreases ○ Purchase on account - AP increases ○ Paid on account - AP decreases T account - Correct answer-debit left, credit on the right - asset is debit - liability and shareholder's equity is credit Journal Entry - Correct answer-Chronological record of transactions - write debit first then credit - include reason at the bottom - perpetual record Ledger - Correct answer-a t account used for every account - perpetual record Trial Balance - Correct answer-a list of all ledger accounts with their balances at a point in time - order: assets, liabilities and shareholder's equity Cash Basis Accounting - Correct answer-Reporting income when the cash is received and expenses when the cash is paid. Accrual Basis Accounting - Correct answer-reporting income when it is earned and expenses when they are incurred Revenue Recognition Principle - Correct answer-□ The business has delivered the goods/services to its customer □ The amount of revenue can be reliably measures □ It is probable the revenue will be received Matching Principle - Correct answer-□ There has been a decrease in future economic benefit caused by a decrease in an asset or an increase in a liability □ The expense can be reliably measured deferred (prepaid) expenses - Correct answer-record as asset when purchased, and move to expenses when used or expired deferred (unearned) revenues - Correct answer-Record as liability when received, record as revenue when work is complete accrued expenses - Correct answer-expenses incurred but not yet paid in cash or recorded - record as expense and credit a payable account Accrued Revenues - Correct answer-revenues for services performed but not yet received in cash or recorded - record as accrued revenues when service is performed, move to service revenue when paid Carrying amount (book value) - Correct answer-The difference between the cost of a depreciable asset and its accumulated depreciation Depreciation in Journal - Correct answer-debit depreciation expense, credit accumulated depreciation Closing Revenue Accounts - Correct answer-debit revenue, credit retained earnings Closing Expense Accounts - Correct answer-Credit expense account, debit retained earnings Closing the Dividends account - Correct answer-debit retained earnings, credit dividends Net Working Capital - Correct answer-current assets - current liabilities Current Ratio - Correct answer-total current assets/total current liabilities Debt ratio - Correct answer-total liabilities/total assets Importance of Cash - Correct answer-§ Expand their operations § Replace and acquire needed assets § Pay salaries and bills § Pay interest on funds borrowed and repay principal § Pay dividends to share holders § Keeps company a float Purpose of the Statement of Cash Flows - Correct answer-§ Predict future cash flows § Evaluate management decisions § Determine ability to pay dividends and interest § Assess the relationship between net income and cash flows § Compare operating performance of different companies Indirect method of compute operating CF - Correct answer-□ Add depreciation/amortization expense □ For current asset ® Subtract increase in non-cash accounts ® Add decrease in non-cash accounts □ For current liabilities ® Add increases in accrual basis earnings ® Subtract decreases from accrual basis earnings □ Subtract gains (Sales Price Book Value) □ Add Losses (Sales Price Book Value Compute cash from acquisition and sale of PP&E - Correct answer-□ PP&E beginning balance + Acquisitions - Depreciation - Carrying amount of Asset sold = PP&E ending Balance □ Sale proceeds = Carrying amount + Gain - Loss Compute cash from acquisition and sales of investment - Correct answer-□ Beginning balance + Purchases - Carrying amount of investment sold = Ending Balance □ Sale proceeds = Carrying amount + Gain - Loss Computing Cash from Making and Collecting Loans and Advance to others - Correct answer-Beginning Balance + new loans made - collections = ending Balance Computing cash from issuance and payments of Long Term Debt - Correct answerBeginning balance + Borrowing of new debt - repayments of debt = ending balance Computing cash from issuances of shares and repurchase of shares - Correct answerBeginning balance + Issuance of new shares - Repurchase of shares = ending balance Computing cash from dividend payments - Correct answer-RE beginning balance + Net Income - Dividends declared = Ending Balance Free Cash Flow (FCF) - Correct answer-Free Cash Flow = Net Cash Flow provided by operating activities - Capital expenditures on PP&E controls for cash - Correct answer-○ Keep cash in back account ○ Separation of duties § Person who handles cash should not be the one recording cash transactions □ Or else called incompatible functions ○ Proper authorization for purchases ○ Proper authorization for cash payments ○ Authorize a limited number of people to sign cheques ○ Require daily deposits for cash receipts Documents used to control a bank account - Correct answer-signature card, check, bank statement, deposit slips, online authentication mechanism bank reconciliation - Bank side - Correct answer-reconcile bank statement to correct balance □ Deposits in transit (outstanding deposits) - add to bank reconciliation □ Outstanding cheques - subtract from bank reconciliation □ Bank errors - correct all errors Bank reconciliation - Book side - Correct answer-□ Bank collections - add to book reconciliation □ Electronic funds transfers (EFT) - Add EFT receipts and subtract EFT payments □ Service charges - subtract from book reconciliation □ Cost of printed cheques - subtract from book reconciliation □ Nonsufficient funds cheques (NSF) - subtract NSF cheques from bank reconciliation □ Interest income - add interest income □ Book errors - correct errors - each fix must have a journal entry