Chapter 2

Question 1

what is the starting point of the accounting process

Answer 1

identifying

Question 2

the entire life of a business enterprise can be divided into equal time periods known as ________?

Answer 2

accounting periods
bookkeeping periods
reporting periods

Question 3

what is a calendar year

Answer 3

a reporting period that starts jan 01 and ends dec 31

Question 4

what is a fiscal year

Answer 4

it is still a year long reporting period but doesnt necessarily start jan 01 and end dec 31

Question 5

what is an interim period

Answer 5

a business period within an (1year) accounting period.

Question 6

what is a natural business year

Answer 6

a period of twelve months for which a company prepares its accounts based on its typical levels of activity, starting and ending when activity have reached their the lowest point.

Question 6

what is the objective of a financial statement

Answer 6

provide finan info about an entity’s assets, liabilities, equity, income, and expenses

Question 7

what are the FOUR components of a financial statement

Answer 7

1. statement of financial position
2. statement of financial performance
3. statement of changes in the owner’s equity
4. statement of cash flows

Question 8

what is a general-purpose financial statement

Answer 8

a set of financial reports that are intended to be used by a wide range of users, including investors, creditors, regulators, and management. The most common general purpose financial statements are: the balance sheet. income statement. cash flow statement.

Question 9

what is a specific-purpose financial statement

Answer 9

A special-purpose financial statement is a financial report that is intended for presentation to specific users. they are sometimes referred to as internal reports

Question 10

who are the users of financial info

Answer 10

1. internal - management group
2. external - financing group and public group

Question 11

who are the management group

Answer 11

internal users who own and manage a business entity. those who are directly involved in managing he business. Internal financial reports are prepared for them but they are noth governe by GAAP.

Question 12

who are the financial group and public group

Answer 12

external users who do not own a business and/or manages and control the business entity. those who are not directly involved.

Question 13

interest groups that use financial statements

Answer 13

1. management
2. investors
3. suppliers and trade creditors
4. banks and other lenders
5. government and its agencies
6. employees and labor unions
7. customers and clients
8. genera public

Question 14

what is the statement of financial position

Answer 14

The balance sheet - also called the Statement of Financial Position - serves as a snapshot, providing the most comprehensive picture of an organization’s financial situation. It reports on an organization’s assets (what is owned) and liabilities (what is owed). The net assets (also called equity, capital, retained earnings, or fund balance) represent the sum of all annual surpluses or deficits. The balance sheet also indicates an organization’s liquidity by communicating how much cash an
organization has at present and what assets will soon be available in the form of cash.

Question 15

balance sheet

what does the heading display

Answer 15

1. name of the business
2. title of financial statement which is finan pos
3. the date (usually end of the year)

Question 16

what does the body display

Answer 16

1. assets
2. liabilities
3. equity of the owner/s

Question 17

what is the fundamental accounting equation

Answer 17

assets = liabilities + owner’s equity

Question 18

what is a current asset and a noncurrent asset

Answer 18

is an account listed on a balance sheet that shows the value of the assets owned by a company that can be converted to cash through liquidation, use, or sales within one year. cash, investment, receivables, notes, inventories, prepaird expenses

Noncurrent assets are a company’s long-term investments for which the full value will not be realized within the accounting year

Question 19

what are the current assets

Answer 19

1. cash
2. investment in stock
3. investment in bonds
4. accounts receivable
5. notes receivable
6. loans receivable
7. inventories
8. prepaid expenses
9. accrued revenue receivable

Question 20

what are the noncurrent assets

Answer 20

1. land
2. building
3. equipment
4. furniture and fixtures
5. tools, patterns, molds, and dies
6. franchise

Question 21

what is a contra-asset

Answer 21

A contra asset account is a type of asset account where the account balance may either be a negative or zero balance. This type of asset account is referred to as “contra” because normal asset accounts might include a debit, or positive, balance, and contra asset accounts can include a credit, or negative, balance.

Question 22

what is a liability

Answer 22

Liabilities are any debts your company has, whether it’s bank loans, mortgages, unpaid bills, IOUs, or any other sum of money that you owe someone else.

Question 23

liability equation?

Answer 23

L = A - OE