Chapter 1 - Financial Statements

Question 1

Financial statements :

Answer 1

Reports that companies use to convey the financial results of their business activities to various user groups

Question 2

Accounting :

Answer 2

Info system that measures and records business activities, processes data into reports, and reports results to decision makers.
“The language of business”.

Question 3

Financial accounting :

Answer 3

One of the 2 categories of accounting.
Provides info for managers inside the business and for decision makers

Question 4

Management accounting :

Answer 4

One of the 2 categories of accounting
Generates inside info for the managers of the organization

Question 5

Income statement :

Answer 5

Measures company’s operating performance for a specified period of time

Question 6

Revenue :

Answer 6

Amts earned by a company in the course of its ordinary, day-to-day business activities

Question 7

Gains

Answer 7

Rep other items that result in an increase in economic benefit to a company and may, usually to, occur in the course of the company’s ordinary business activities.

Question 8

Expenses

Answer 8

Cost incurred to purchase goods/services a company needs to run its business on a day-to-day basis

Question 9

Losses

Answer 9

Type of expense that results in decrease in economic benefits to a company, and usually occurs outside the course of the company’s ordinary business activities.

Question 10

Net Income :

Answer 10

The excess of a company’s total income over its total expenses. Net earnings or net profit is the same thing
Net Income = Total Revenues and Gains - Total Expenses and Losses

Question 11

Net Loss :

Answer 11

When total expenses exceed total income

Question 12

Retained earnings :

Answer 12

The accumulated net income of the company since the day it started business

Question 13

Deficit

Answer 13

Term used when retained earnings is a negative balance

Question 14

Statement of retained earnings :

Answer 14

Summary of the changes in the retained earnings of a corporation during a specific period

Question 15

3 elements of a company’s financial position:

Answer 15

Assets it controls
Liabilities it is obligated to pay
Equity its owners have accumulated in the business

Question 16

Balance Sheet / Statement of Financial Position :

Answer 16

Reports company’s financial position as at a specific date. Assets it reports must ALWAYS equal sum of liabilities & equity

Question 17

Asset :

Answer 17

Resource controlled by the company as a result of past events and from which the company expects to receive future economic benefits.

Question 18

2 categories of assets

Answer 18

Current Assets
Non-Current Assets

Question 19

Current Assets

Answer 19

Asset that’s expected to be converted to cash, sold or consumed during the next 12 months, or within business’s normal operating cycle.
Listed in order of their liquidity.

Question 20

Non-current assets / long-term assets

Answer 20

Any asset that’s not classified as a current asset

Question 21

Carrying amount :

Answer 21

The historical cost of an asset net of its accumulated depreciation

Question 22

Liability

Answer 22

Obligation (or debt) owed by a company, which it expects to pay off in the future using some of its assets

Question 23

Accounts payable

Answer 23

Debts company owes to companies that have supplied them w goods/services in the past

Question 24

2 categories of liabilities

Answer 24

Current liabilities
Non-Current liabilities / Long-term liabilities

Question 25

Current liabilities

Answer 25

Debts company expects to pay off within 1 yard of the balance sheet date, or within company’s normal operating cycle

Question 26

Non-current liabilities

Answer 26

Debts company expects to pay off beyond 1 yr from the balance sheet date

Question 27

Owners’ equity / Net Assets / Shareholders’ equity :

Answer 27

Owners’ remaining interest in the assets of the company after deducting all its liabilities.

Question 28

Ending Balance of Retained Earnings Equation

Answer 28

Beginning balance of retained earnings + net income - dividends

Question 29

Owners’ Equity Eqn

Answer 29

Assets-Liabilities

Question 30

Accounting info must possess 4 enhancing qualitative characteristics

Answer 30

• comparability
• verifiability
• timeliness
• understandability

Question 31

Going-concern assumption

Answer 31

The assumption that an entity will continue operating normally for the foreseeable future

Question 32

Separate-entity

Answer 32

Holds that the business activities of the reporting entity are separate from the activities of its owners

Question 33

Historical-cost

Answer 33

Holds that assets should be recorded at their actual cost, measured on the date of purchase as the amt of cash paid + dollar value of all non-cash considerations

Question 34

Stable-monetary-unit assumptions

Answer 34

Holds that regardless of the reporting currency used, financial info is always reported under the assumption that the value of the currency is stable, despite the fact that its value does change due to economic factors

Question 35

Fair value :

Answer 35

The amt that a business could sell an asset for, or the amt that a business could pay to settle a liability

Question 36

3 factors influence business and accounting decisions :

Answer 36

economic
legal
ethical factors

Question 37

Ethical standards :

Answer 37

Standards that govern the way we treat others and the way we restrain our selfish desires. Shaped by our cultural, socioeconomic, and religious backgrounds