BUSN Ch. 7 Accounting

Question 1

What is accounting?

Answer 1

It is a system for recognizing, organizing, analyzing, and reporting information about the financial transactions of an organization.

Question 2

Who is interested in accounting information?

Answer 2

Owners (Shareholders, too!)
Creditors
Employees
Government

Question 3

Why are owners interested in accounting information?

Answer 3

They would like to know whether their firm made a profit or suffered a loss.

Question 4

Why are creditors interested in accounting information?

Answer 4

They want to ensure the firm can repay any loans they make.

Question 5

Why are employees interested in accounting information?

Answer 5

They want to know whether the company is doing well enough to provide job security and a good pay raise.

Question 6

Why is the government interested in accounting information?

Answer 6

They want to know how much taxable income is earned every period.

Question 7

Name the accounting standard.

Answer 7

The International Financial Reporting Standards (IFRS).

Question 8

What is the IFRS?

Answer 8

The International Financial Reporting Standards are rules that govern the practice of financial accounting. It is to ensure financial accounting information is relevant, reliable, consistent, and comparable.
It is the language of money!!

Question 9

What is in the Balance Sheet?

Answer 9

It shows the firm’s financial position at a specific point in time by reporting the value of its assets, liabilities, and owners’ equity.

Question 10

What is in the Income Statement?

Answer 10

It shows the net income (profit or loss) the firm earns over a stated period of time by deducting expenses from revenues.

Question 11

What is in the Statement Of Cash Flows? Verbose answer.

Answer 11

It shows the inflows and outflows of cash that result from a firm’s operations, its financing activities, and its investing activities in a given time period, and the net change in the amount of available cash the firm has over that time period.

Question 12

What is the Statement Of Cash Flows? Concise answer.

Answer 12

The financial statement that identifies a firm’s source and uses of cash in a given accounting period.

Question 13

Accounting equation? Go!

Answer 13

Assets = Liabilities + Equity

Question 14

List some other methods stakeholders can use to obtain insights from a company’s financial statements.

Answer 14

Examine the independent auditor’s report
The management discussion
The endnotes

Question 15

What insight is provided by the independent auditor report?

Answer 15

It indicates whether the statements were prepared in accordance to accounting standards and fairly present the financial condition of the company.

Question 16

What insight is provided by the management discussion?

Answer 16

It puts the numbers in context.

Question 17

What insight is provided by the endnotes?

Answer 17

They often disclose key information that isn’t directly available in the statements.

Question 18

What are assets?

Answer 18

Resources owned by a firm.

Question 19

What are liabilities?

Answer 19

Claims against the firm’s assets. Loaned value. (Money, equipment, property, etc)

Question 20

What is owners’ equity?

Answer 20

The claims a firm’s owners have against their company’s assets (often called shareholders’ equity on balance sheets of corporations). Resources that the owners personally invested into.

Question 21

What is managerial accounting?

Answer 21

It provides information to an organization’s managers and other internal stakeholders so that they can make better decisions.

Question 22

What information is provided by managerial accounting?

Answer 22

The classification and measurement of costs.

Question 23

List the different classifications of costs.

Answer 23

Explicit
Implicit
Fixed
Variable
Direct/Indirect

Question 24

What are explicit costs? (Out-of-pocket)

Answer 24

A cost that involves the payment of money or other resources.

Question 25

What are implicit costs?

Answer 25

The opportunity costs that arises when a firm uses owner-supplied resources.

Question 26

What are fixed costs?

Answer 26

Costs that remain the same when the level of production changes within some relevant range.

Question 27

What are variable costs?

Answer 27

Costs that vary directly with the level of production.

Question 28

What are direct costs?

Answer 28

Costs that are incurred directly as the result of some specific cost object.

Question 29

What are indirect costs?

Answer 29

Costs that are the result of a firm’s general operations and are not directly ties to any specific cost object.

Question 30

What is a cost object?

Answer 30

It is a term used to describe something to which costs are assigned.

Question 31

What is financial ratio analysis?

Answer 31

Computing ratios that compare values of key accounts listed on a firm’s financial statements.

Question 32

What is a liquid asset?

Answer 32

An asset that can be quickly be converted into cash with little risk of loss.

Question 33

What are liquidity ratios?

Answer 33

Ratio that measures the ability of a firm to obtain the cash it needs to pay its short-term debt obligations as they come due.

Question 34

What are asset management ratios?

Answer 34

Ratio that measures how effectively a firm is using its assets to generate revenues or cash.

Question 35

What is financial leverage?

Answer 35

The use of debt in a firm’s capital structure.

Question 36

What does it mean for a company to be leveraged?

Answer 36

The company is using little of its own equity and is mostly relying on liabilities to fund its venture(s).

Question 37

What are leverage ratios?

Answer 37

Ratios that measure the extent to which a firm relies on debt financing in its capital structure. (Liabilities vs Equity)

Question 38

What are profitability ratios?

Answer 38

Ratios that measure the rate of return a firm is earning on various measures of investment.
Return on assets and return on equity, measure the firm’s overall success at using resources to create a profit for its owners.