Ch. 2: Financial Statements

Question 1

Accounting Period

Answer 1

The period of time, no more than 1 year, covered by the three financial statements.

Question 2

Current Asset

Answer 2

An asset that can reasonably be expected to be used up or converted into cash or sold within 1 year or less.

Question 3

Current Liability

Answer 3

A debt that is payable within 1 year or the current accounting period, whichever is longer.

Question 4

Intangible Asset

Answer 4

An asset that cannot readily be seen or touched. Examples include copyrights, franchises, patents, and trademarks. Intangible assets have no physical substance, but are of value to the owners of the organization. This value is based on rights or privileges belonging to the owner.

Question 5

Interim (Financial) Statement

Answer 5

A statement prepared for any period of time that is less than a complete accounting period (1 year).

Question 6

Investments

Answer 6

Assets that are not used in the operation of a business, and are not expected to be converted into cash within 1 year.

Question 7

Long-Term Liability

Answer 7

an obligation that is not expected to mature and become payable within 1 year. A mortgage note payable is an example of this type of liability.

Question 8

Property, Plant, and Equipment

Answer 8

Assets that have a useful life of more than 1 year and are used in the continuing operations of the organization.

Question 9

Balance Sheet

Answer 9

A financial statement that shows the financial position of a business at a particular moment in time—a detailed presentation of the assets, liabilities, and owner’s equity. Actually, it is a detailed accounting equation, in which the total value of the assets is equal to the total liabilities plus proprietor’s capital.

Question 10

Income Statement

Answer 10

A financial statement that presents revenue and expenses and resulting net income or loss for a specific period of time.

Question 11

Statement of Capital

Answer 11

A financial statement that shows the change in the value of the ownership in a business over a period of time. The change in capital is due to income or loss and withdrawals by the owner over a period of time.

Question 12

Statement of Cash Flows

Answer 12

A financial statement that reports the sources (inflows) and uses (outflows) of cash for a reporting period.