BA101 (Week 4) Chapter 15

Question 0

Financial Accounting

Answer 0

Performed for reporting purposes. It must occur for General Accepted Accounting Principles (GAAP)

Question 1

Public Accountants

Answer 1

Providing accounting services for variety of firms for a fee.
-Needs to have Certified public accountants (CPA)

Question 2

Managerial Accounting

Answer 2

Provide info to help managers of firm make decisions.

Question 3

Auditing

Answer 3

Records that were used to prepare a firm’s financial statement.

Question 4

Internal auditors

Answer 4

Specialize in evaluating various divisions of a business to ensure that they operate efficiently.

Question 5

Role of Auditor

Answer 5

• ensure financial statements are accurate and within GAAP. Can not always be trusted because someone might do it wrong.

Question 6

Roles of Directors

Answer 6

Board of directors sometimes represent shareholders, they try to prevent providing misleading financial reports.

Question 7

Income Statement

Answer 7

Indicated that revenue, cost and earnings of a firm over a period of time

Question 8

Balance Sheet

Answer 8

Balance sheet reports the book value of all assets, liabilities and owner’s equity of a firm at a given point in time.

Question 9

(Income Statement)

• Net Sales
• Cost of Goods Sold

Answer 9

• Net Sales are total sales adjusted for any discounts

- Cost of Goods Sold are cost of material used to produce goods that were sold

Question 10

(income Statement)

• Gross Profit
• Operating Expenses
• Earning before interest & taxes (EBIT)
• Earning before taxes
• Net Income

Answer 10

1. gross Profit is (net sales - cost of goods sold)
2. Operating expenses composed Is selling expenses, general and administrative expenses.
3. EBIT (Gross Profit - Operating Expenses)
4. EBT (EBIT - interest expenses)
5. Net Income (EBT - taxes)

Question 11

(Balance Sheet)

1. assets
2. The basic accounting equation
3. Liability

Answer 11

1. Anything owned by a firm
2. Assets = liabilities + owner’s equity
3. Anything owed by the firm

Question 12

(Balance Sheet)

1. Current assets
2. Marketable Securities
3. Account receivable
4. Inventory

Answer 12

1. Current Assets will be converted into cash within a year
2. Marketing Securities are short-term securities that can easy be sold and quickly converted into cash
3. Account receivable is sales made but payment not received.
4. Inventory are materials and products that has not been sold.

Question 13

(Balance Sheet)

1. Fixed assets
2. Depreciation
3. Other component

Answer 13

1. Fixed assets will be used by a firm for more than a year
2. Depreciation reduces value of fixed assets to reflect deterioration in assets over time.
3. Plants and equipment

Question 14

(Liabilities and owner’s equity)

1. Accounts Payable
2. Notes payable
3. Owner’s equity

Answer 14

1. Accounts Payable is money owned by firm for purchases
2. Notes payable are short-term loans to a firm made by creditors such as banks.
3. Owner’s equity is par (or stated) valued of all common stock issued, additional paid-in capital and retain earnings.

Question 15

Ratio Analysis

Answer 15

Ratio analysis is evaluation of the relationship between financial statement variables.
They do this by comparing their financial ratio with other firms in industry and also compare over time.

Question 16

Measure of Liquidity

1. Liquidity
2. Current Ratio

Answer 16

1. Liquidity 8/ firm’s ability to meet short-term obligations.
2. Current Ratio = current Assets / current liabilities.

Question 17

Measure Of Financial Leverage

1. debt to equity ratio

Answer 17

1. It measure amount of long term financial provided by debt relative to equity.
   Debt to equity = long term debt / owner’s / equity.

Question 18

Measure of Profitability

1. Return on Equity (ROE)

Answer 18

ROE measure return to common stockholders as percentage of their investment in firm.
ROE = net income / owners equity