Chapter 1

Question 1

What is a financial statement?

Answer 1

A document that companies create to communicate their financial earnings.

Question 2

What does the Income Statement report?

Answer 2

Revenues, Expenses, and Net Income or (Net Loss)

Question 3

What are revenues?

Answer 3

Amounts earned for selling products or services to customers. Service and sales revenue.

Question 4

What are Expenses?

Answer 4

The costs of operating the company.

Question 5

What is COGS?

Answer 5

Cost of goods sold

Question 6

What are examples of expenses?

Answer 6

Selling, marketing, administrative, interest, income tax, losses

Question 7

What is the calculation for Net Income (N/I)?

Answer 7

Revenues - Expenses = Net Income or (Net Loss)

Question 8

What question does the income statement answer?

Answer 8

How well did a company perform during the period?

Question 9

What does the Balance Sheet report?

Answer 9

Assets, Liabilities, and Stockholders’ Equity (S/E)

Question 10

What is an asset?

Answer 10

Resources of a business, the business will derive a future benefit from this resource.

Question 11

Examples of assets

Answer 11

Cash, Accounts Receivable, Inventory, Supplies, Land, Buildings, Equipment

Question 12

Is land a current or long-term asset?

Answer 12

Long-term asset

Question 13

Is cash a current or long-term asset?

Answer 13

Current asset

Question 14

Is accounts receivable a current or long-term asset

Answer 14

Current asset

Question 15

What is PP&E?

Answer 15

Property, Plant, and Equipment

Question 16

What is a liability?

Answer 16

Amounts owed to third parties; debts, obligations

Question 17

Examples of liabilities

Answer 17

Accounts payable, interest payable, notes payable, salaries payable, income taxes payable

Question 18

Is accounts payable a current or long-term liablility?

Answer 18

Current liability

Question 19

When are current liabilities typically due?

Answer 19

Within one year

Question 20

Is bonds payable a current or long-term liability?

Answer 20

Long-term liability

Question 21

What is the accounting equation?

Answer 21

Assets = Liabilities + Stockholders’ Equity

Question 22

True or False: The accounting equation only sometimes holds true

Answer 22

False. The accounting equation ALWAYS holds true. There is never an exception to this rule.

Question 23

What are the two components of stockholders’ equity?

Answer 23

Common Stock and Retained Earnings

Question 24

What question does the balance sheet answer?

Answer 24

What is the company’s financial position?

Question 25

What three items flow through Retained Earnings that cause it to change?

Answer 25

Revenues, Expenses, Dividends

Question 26

What does the statement of Retained Earnings report?

Answer 26

Reports the changes in the retained earnings during the period.

Question 27

What are dividends?

Answer 27

The distribution of a company’s earnings.

Question 28

Revenues __________ Retained Earnings.

Answer 28

Increase

Question 29

Expenses and Dividends _____________ Retained Earnings.

Answer 29

Decrease

Question 30

What are the rules that govern financial accounting?

Answer 30

Generally Accepted Accounting Principles (GAAP)

Question 31

What is the name of the board that is responsible for setting standards of GAAP?

Answer 31

Financial Accounting Standards Board (FASB)

Question 32

Where can you find financial statements (10-K Reports)?

Answer 32

SEC’s EDGAR website https://www.sec.gov/edgar/search-and-access