Accounting I - Chapter 9 Review Tool

Question 1

Income Statement

Answer 1

• shows you the company’s income and expenditures
• provide essential information for making sound decisions.
• includes only the temporary general ledger accounts

Question 2

Ratio Analysis

Answer 2

• process of evaluating the relationship between various amounts in the financial statements.
• owners and managers use this to determine the financial strength, activity, and debt-paying ability of a business.

Question 3

Financial Statements

Answer 3

• gather information from different accounts and documents.
• provide essential information for making sound decisions.

Question 4

Net Income

Answer 4

Total expenses subtracted from total revenue (expenses < revenue)

Question 5

Net Loss

Answer 5

When the Income Statement debit column total is greater than the Income Statement credit column total. (expenses > revenue)

Question 6

Balance Sheet

Answer 6

• a report of the balances in the permanent accounts at the end of the period.
• reports the assets of the business and the claims against those assets on a specific date
• states financial position of a business at a specific point in time
• summarizes what the business owns, owes, and is worth

Question 7

Report Form

Answer 7

listing the balance sheet sections one under the other

Question 8

Statement of Changes in Owner’s Equity

Answer 8

summarizes changes in the owner’s capital account as a result of business transactions that occur during the period

Question 9

Current Liabilities

Answer 9

• debts of the business that must be paid within the next accounting period
• accts. pay.

Question 10

Current Assets

Answer 10

• those used up or converted to cash during the normal operating cycle of the business
• accts. rec.
• cash in bank
• supplies
• NOT equipment

Question 11

Return on Sales

Answer 11

• profitability ratio that examines the portion of each sales dollar that represents profit
• divide net income (profit)/sales (revenue)

Question 12

Current Ratio

Answer 12

• reflects relationship between current assets & current liabilities
• current assets/current liabilities
• ex. 1.92 OR 1.92:1 (higher the better)
• low ratio = company has trouble paying its debts

Question 13

Statement of Cash Flows

Answer 13

• covers a single accounting period.
  summarizes
• amount of cash the business took in
• sources of cash
• amount of cash the business paid out
• uses of cash

Question 14

Parts of a Heading

Answer 14

• name of business (who?)
• name of report (what?) - work sheet, income statement, statement of changes in owner’s equity, balance sheet
• period covered (when?) - “For the Month Ended ____ DAY, 2022” “____ DAY, 2022” for balance sheet

Question 15

Net Sales

Answer 15

• sum of a company’s gross sales minus its returns, allowances, and discounts
• total amount of revenue a business generates from sales after accounting for discounts, customer returns, and other deductions

Question 16

Know how to calculate current assets, current liabilities, current ratio, quick ratio, and return on sales.

Answer 16

Current Ratio: current assets/current liabilities
Quick Ratio: cash + rec./current liabilities
Return on Sales: profit/revenue