Chapter 1: Intro to Financial Statements

Question 1

sole proprietorship

Answer 1

business owned by one person

Question 2

partnership

Answer 2

business owned by two or more people

Question 3

corporation

Answer 3

separate legal entity owned by stockholders

Question 4

accounting

Answer 4

the information system that identifies, records, and communicates the economic events of an organization to interested users

Question 5

internal users (list)

Answer 5

marketing
human resources
finance
management

Question 6

external users (list)

Answer 6

investors
creditors
IRS, SEC, FTC
labor unions
customers

Question 7

income statement

Answer 7

reports the success or failure of the company’s operations for a period of time.

Question 8

retained earnings statement

Answer 8

reports the amount paid out in dividends and the amount of net income/net loss for a specific period of time

Question 9

balance sheet

Answer 9

shows relationship between assets and liabilities/stockholders equity.

Question 10

annual report

Answer 10

a report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes, and an independent auditors report.

Question 11

assets

Answer 11

resources owned by a business

Question 12

auditors report

Answer 12

a report prepared by an independent outside auditor stating the auditors opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.

Question 13

certified public accountant

Answer 13

an individual who has met certain criteria and is thus allowed to perform audits of corporations.

Question 14

common stock

Answer 14

term used to describe the total amount paid in by stockholders for the shares they purchase.

Question 15

dividends

Answer 15

payments of cash from a corporation to its stockholders.

Question 16

expenses

Answer 16

the cost of assets consumed or services used in the process of generating revenues.

Question 17

liabilities

Answer 17

amounts owed to creditors in the form of debts and other obligations

Question 18

management discussion and analysis

Answer 18

a section of the annual report that presents management’s views on the company’s ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.

Question 19

net income

Answer 19

the amount by which revenues exceed expenses

Question 20

net loss

Answer 20

the amount by which expenses exceed revenues.

Question 21

notes to the financial statements

Answer 21

notes clarify information presented in the financial statements and provide additional detail.

Question 22

revenue

Answer 22

the increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business.

Question 23

sarbanes-oxley act (sox)

Answer 23

regullations passed by Congress to reduce unethical corporate behavior.

Question 24

statement of cash flows

Answer 24

a financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

Question 25

stockholder’s equity

Answer 25

the owner’s claim to assets.

Question 26

Income statement

net income/loss formula

Answer 26

Revenues
-expenses
=net income/loss

Question 27

statement of retained earnings formula

Answer 27

beginning retained earnings
add: net income
less: dividends
=end retained earnings

Question 28

balance sheet formula

Answer 28

assets= liabilities+ stockholder’s equity

Question 29

earnings per share (EPS)

Answer 29

=net income/ average common share outstanding

Question 30

working capital ratio

Answer 30

=current asset

-current liability

Question 31

current ratio

Answer 31

current assets/current liabilities

Question 32

debt to asset ratio

Answer 32

total liabilities/total assets