Wall Street Prep Test Questions with Correct Solutions | Graded to Pass

Accounting Entity - A corporation is considered a "living" enterprise i.e. a "fictional" being. Going concern - A corporation is assumed to remain in existence for the foreseeable future. Measurement & Units of Measure - Financial Statements show only measurable activities of a company. Financial statements must be reported in the national monetary unit. Periodicity - A company's continuous life can be divided into measured periods of time for which financial statements are prepared. U.S companies are required to file quarterly (10-Q) and annual (10-K) reports Historical Cost - Financial statements report companies resources and obligations at an initial historical cost. This conservative measure precludes constant appraisal and revaluation. Revenue Recognition - Revenues must be recorded when earned and measurable. Matching Principle - Costs of a product must be recorded during the same period as revenue from selling it. Disclosure - Companies must reveal information determined to make a difference to its users. Estimates and Judgements - Certain measurements cannot be performed completely accurately, and must therefore utilize conservative estimates and judgments. Materiality - Inclusion of certain financial transaction in financial statements hinges on their size and the that of a company performing them. Consistency - For each company, preparation of financial statements must utilize measurement techniques and assumptions which are consistent from one reporting period to another. Conservatism - A downward measurement bias is used in the preparation of financial statements. Assets and revenues should not be overstated while liabilities and expenses should not be understated. The regulatory body that oversees the development of accounting standards in the U.S. - FASB The income statement is designed to measure - The profits of a firm over a period of time The "matching principle" states that - Costs associated with making a product must be recognized during the same period as revenue generated from that product Net Revenue - Total dollar payment for goods and services that are credited to an income statement over a particular time period costs of goods sold - Cost of Goods sold represents a company's direct cost of manufacture (for manufacturers) or procurement (for merchandisers) of a good or service that the company sells to generate revenue. Gross Profit - revenue - cost of goods sold selling, general and administrative expenses (SG&A) - Operating costs not directly associated with the production or procurement of the product or service that the company sells to generate revenue. Payroll, wages, commissions, meal and travel expenses, stationary, advertising, and marketing expenses fall under this line item. research and development - A company's activities that are directed at developing new products or procedures. EBITDA - Earnings before interest, taxes, depreciation, and amortization : Gross profit - SG&A - R&D. EBITDA is a popular measure of a company's financial performance.