12. Accounting information

Question 1

define accounting

Answer 1

• collecting, analysing and communicating accounting information

Question 2

define bookkeeping

Answer 2

recording of accounting transactions

Question 3

who using accounting information

Answer 3

• employees and union
• business managers
• investors and creditors
• tax authorities
• government regulatory agencies

Question 4

3 accountant

Answer 4

• controller
• Certified Public Accountant
• private accountant

Question 5

controller

Answer 5

control all of a firm’s accounting activities

Question 6

certified public account (CPA)

Answer 6

• licensed by state
• offering services to public

Question 7

private account

Answer 7

• hired by a business to carry day-to-day financial activity

Question 8

3 CPA services

Answer 8

• audit
• tax services
• management advisory services

Question 9

define audit

Answer 9

• systematic examination of company’s accounting system to determine whether the financial report is reliably represent the operations

Question 10

define tax services

Answer 10

• assistance for tax planning and tax preparation

Question 11

define management advisory services

Answer 11

assistance to certain areas
- financial planning
- information system design

Question 12

accounting equation

Answer 12

asset = liability + owner’s equity

Question 13

define financial statement

Answer 13

report summarizing financial status to stakeholders
- to aid managerial decision making

Question 14

3 types of financial statements

Answer 14

• financial position
• income
• cash flow

Question 15

statement of financial position

Answer 15

• detailed firms asset, liability and equity

Question 16

6 sectors in statements of financial position

Answer 16

1. current asset- convert into cash within one years
2. fixed asset - long-term use or value (land, buildings)
3. current liability - debt due within one years
4. long term liability - debt not due more than one year
5. account payable - current liability including bills owed by suppliers
6. retained earnings - earnings excluding dividend

Question 17

define income statement

Answer 17

• listing revenue and expenses
• show annual profit or loss

Question 18

6 part of income statements

Answer 18

1. revenue
2. cost of revenue
3. gross profit
4. operating expenses
5. operating income
6. net income (income tax)

Question 19

define cash flow statement

Answer 19

yearly cash receipt and cash payments

Question 20

3 types of cash flow

Answer 20

• investing
• financing
• operating

Question 21

2 reporting standard

Answer 21

• revenue recognition
• full disclosure

Question 22

3 major classifications of financial ratios

Answer 22

• solvency
• profitability
• activity

Question 23

solvency ratio

Answer 23

• estimating the ability of a borrowers to repay debt

Question 24

activity ratio

Answer 24

• evaluating the management efficiency

Question 25

profitability ratio

Answer 25

• measure firm’s potential earnigns

Question 26

current ratio

Answer 26

= current assets / current liability

Question 27

debt to equity ratio

Answer 27

debt / equity

Question 28

return on equity ratio

Answer 28

net income / total equity

Question 29

earning per share ratio

Answer 29

net income / number of share outstanding