01.03- Elements of Financial Statements

Question 1

What is included in a full set of FINANCIAL STATEMENTS?

Answer 1

• Statement of Position (Balance Sheet)
• Statement of Earnings Financial & Comprehensive Income (Income Statement)
• Statement of Cash Flows
• Statement of Changes in Owners’ Equity (statement of investments by and distributions to Owners)

Question 2

What are the three basis elements that make up all financial statements?

Answer 2

• Assets
• Liability
• Equity

Question 3

What are ASSETS?

Answer 3

An economic resource that has a probable future benefit, one can obtain the benefit, and the transaction creating the benefit has already occurred.

Question 4

What are LIABILITIES?

Answer 4

An economic obligation in which one needs to use or transfer an asset. The obligation cannot be avoided and the transaction has already occurred.

Question 5

What is EQUITY or NET ASSETS?

Answer 5

Assets left over after deducting liabilities.

Question 6

What are the three elements of EQUITY?

Answer 6

• Contributions/investments by owners
• Distributions to owners (dividends)
• Comprehensive income

Question 7

What is COMPREHENSIVE INCOME?

Answer 7

All changes in equity other than “owner” sources.

Question 8

What are four examples of COMPREHENSIVE INCOME?

Answer 8

DENT

• Derivative cash flow hedges
• Excess adjustment of Pension
• Net unrealized gains or losses on “available-for-sale” securities
• Translation adjustments for foreign currency

Question 9

What is the PHYSICAL CAPITAL MAINTENANCE CONCEPT?

Answer 9

You only recognize an event when an asset is sold or a liability is settled.

Question 10

What is the FINANCIAL CAPITAL MAINTENANCE CONCEPT?

Answer 10

You only recognize an event as a change in the value of an asset or a liability occurs.

Question 11

Which maintenance concept is used when accounting for FIXED ASSETS?

Answer 11

Physical Capital Approach

Question 12

Which maintenance concept is used when accounting for MARKETABLE SECURITIES?

Answer 12

Financial Capital Approach

Question 13

What are the four elements of COMPREHENSIVE INCOME?

Answer 13

• Revenues
• Expenses
• Gains
• Losses

Question 14

What do REVENUES and EXPENSES represent?

Answer 14

Inflows and Outflows from primary operations.

Question 15

What do GAINS and LOSSES represent?

Answer 15

Increases and Decreases in equity from incidental transactions.

Question 16

What is CONSISTENCY?

Answer 16

Using the same principles year after year

Question 17

What is CONSERVATISM?

Answer 17

Considering all risks inherent in a business

Question 18

What is COST/BENEFIT?

Answer 18

Acknowledging that costs shouldn’t exceed benefits to be derived.

Question 19

What is MATCHING?

Answer 19

Recognizing a cost as an expense in the same period as the benefit is recognized.

Question 20

What is ALLOCATION?

Answer 20

Spreading a cost over more than one period.

Question 21

What is FULL DISCLOSURE?

Answer 21

Providing all useful information in financial statements.

Question 22

What is RECOGNITION?

Answer 22

Booking an item in the financial statements.

Question 23

What is REALIZATION?

Answer 23

Converting non-cash resources into cash

Question 24

When should an element be recognized in a financial statement?

Answer 24

• Meets the definition of an asset or a liability
• Capable of being measured in monetary terms
• Relevant and Faithfully Represented

Question 25

What is HISTORICAL COST?

Answer 25

Amount you paid for it

Question 26

What is REPLACEMENT COST?

Answer 26

The cost to replace an item

Question 27

What is FAIR MARKET VALUE?

Answer 27

The price that would be received to sell an asset or paid to transfer a liability between market participants on a measurement date

Question 28

What is NET REALIZABLE VALUE?

Answer 28

Amount expected to be converted into

Question 29

What is the PRESENT VALUE?

Answer 29

The time value of money.