Exam (elaborations)
Principles of Financial Accounting Exam 1 Questions and Answers
- Course
- Accounting
- Institution
- Accounting
Principles of Financial Accounting Exam 1 Questions and Answers
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Principles of Financial Accounting Exam1 Questions and Answers
Chapter 1:Accounting and the Financial Statements
Accounting - Answer-is the process of identifying, measuring, recording, and
communicating financial information about a company's business activities so decision
makers can make informed decisions.
Users of Accounting
Information - Answer-1. Managers
2. Employees
3. Investors
4. Creditors
5. Government
Business Forms - Answer-1. Sole Proprietorship
2. Partnership
3. Corporation
Business Activities - Answer-1. Financing Activities
2. Investing Activities
3. Operating Activities
Financing Activities - Answer-Obtaining funds to start a business (from owners or
creditors.
Investing Activities - Answer-Buying assets which are used to generate revenues.
Operating Activities - Answer-Operating the business to earn a profit
Companies prepare four basic financial statements: - Answer-1. Balance Sheet
2. Income Statement
3. Retained earnings statement
4. Statement of cash flows
Balance Sheet - Answer-reports the resources owned by a company (assets) and the
claims against those resources (liabilities and stockholders' equity) at a specific point in
time.
Income statement - Answer-reports how well a company has performed its operations
(revenues, expenses, and net income/loss) over a period of time.
, Retained earnings statement - Answer-reports how much of the company's income was
retained in the business and how much was distributed to owners over a period of time.
Statement of cash flows - Answer-reports the sources and uses of a company's cash
over a period of time.
Generally accepted accounting principles (GAAP) - Answer-were developed by several
different organizations over a number of years.
In the United States, the Securities and Exchange Commission (SEC) has the power to
set - Answer-accounting rules for publicly traded companies.
SEC has delegated this authority to the - Answer-Financial Accounting Standards Board
(FASB).
While the FASB is the primary accounting standard setter in the United States, the
FASB has been working closely with the - Answer-the International Accounting
Standards Board (IASB) in its development of international financial reporting standards
(IFRS).
Assets = - Answer-Liabilities + Stockholder's Equity
Total assets must always equal - Answer-total liabilities plus stockholders' equity
What are Assets: - Answer-Current assets: (e.g. , cash, accounts receivable,
inventories)
Long term investment
Property, Plant, and Equipment: (e.g. , land, equipment)
Intangible assets: (e.g. , patents, copyrights)
What are Liabilities - Answer-Current liabilities: (e.g., accounts payable, salaries
payable)
Long term liabilities (e.g., notes payable, bonds payable)
What are Stockholder's Equity - Answer-Contributed capital (e.g., common stock)
Retained earnings
Working capital - Answer-is a measure of liquidity
Working Capital = - Answer-Current Assets - Current Liabilities
Working capital signals that a company has - Answer-adequate funds with which to pay
its current obligations and is expressed in dollar amounts.
current ratio - Answer-is an alternative measure of liquidity that allows comparisons to
be made between different companies
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