Accounting Exam 1

Question 1

Who created US GAAP?

Answer 1

FASB (Financial Accounting Standards Board

Question 2

Who named the FASB?

Answer 2

SEC

Question 3

SEC does what?

Answer 3

Regulates financial markets, and has governing power over FASB and GAAP

Question 4

What is the IASB

Answer 4

international accounting standard board who set the IFRS (international financial reporting standards).

Question 5

Shareholders Equity

Answer 5

represents owners’ claims on total assets. Owners = “shareholders” or “stockholders”

Question 6

Common stock

Answer 6

Purchased shares of ownership to the company. Voting rights, and a residual claim of the assets if the company fails

Question 7

Retained earnings

Answer 7

cumulative total of all net income and losses retained by the company. Increased when a company records revenues and decreased when a company records expenses and dividends

Question 8

Order of Financial statements

Answer 8

income statement, retained earnings, balance sheet, statement of cashflows. Net income flows into retained earnings and ending retained earnings flows into BS

Question 9

Income statement time

Answer 9

for a period of time

Question 10

Balance sheet time

Answer 10

as of “point in time”

Question 11

Income Statement subtotal headings

Answer 11

Gross Profit
Operating Income
Net Income before taxes
Net Income

Question 12

Balance Sheet subtotal headings

Answer 12

Total current assets
Total assets
Total current liabilities
Total liabilities
Total Stockholders Equity
Total Liabilities and Stockholders Equity

Question 13

Profitability ratio

Answer 13

measures the income or operating success of a company for a given period.

Question 14

Liquidity ratio

Answer 14

measures the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

Question 15

Solvency ratio

Answer 15

measures the ability of the company to survive over a long period of time

Question 16

Current Ratio formula

Answer 16

current assets/current liabilities

Question 17

Debt to Assets Ratio

Answer 17

total liabilities/total assets

Question 18

EPS measures what and how?

Answer 18

measures profitability, by calculating net income earned on each share of common stock

Question 19

Current ratio measures what and how?

Answer 19

measures liquidity, by calculating for every dollar of current liabilities, best buy had $(current ratio) of current assets. (HIGHER THE BETTER)

Question 20

Debt to Assets Ratio measures what and how? –

Answer 20

measures solvency, by calculating the percentage of total financing provided by creditors rather than stockholders (lower the better)

Question 21

Intracompany analysis

Answer 21

comparing trends within the company

Question 22

Intercompany

Answer 22

comparing trends to another company

Question 23

Industry average comparisons

Answer 23

comparing trends to industry averages

Question 24

Elements of the Fraud Triangle

Answer 24

Rationalizations, Financial Pressure, and Opportunity

Question 25

Purposes of internal controls

Answer 25

Safeguard assets
Enhance the reliability of accounting records
Increase efficiency in operations
Ensure compliance with laws

Question 26

Internal Control Components

Answer 26

Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring

Question 27

Examples of internal controls

Answer 27

Physical controls - alarms, safes and time stamps
Independent controls - records are periodically reviewed by independent employee and errors are communicated to management
Human Resource controls - background checks, rotate employee duties and require vacations