Chapter 9

Question 1

what are financial statements

Answer 1

reports prepared to summarize the changes resulting from business transactions that occur during an accounting period
-7th step

Question 2

what are the four types of financial statements

Answer 2

1. income statement
2. balance sheet
3. statement of changes in owner’s equity
4. statement of cash flows

Question 3

what are income statements

Answer 3

a report of the net income or net loss for a specific period sometimes called a profit-and-loss statement

Question 4

what are the sections of an income statement

Answer 4

• three line heading
• the revenue
• the expenses
• the net income or net loss

Question 5

what are the statements of changes in owner’s equity

Answer 5

a financial statement that summarizes changes in owner’s capital account as a result of business transactions during the period

Question 6

what is needed to prepare the statement of changes in owner’s equity

Answer 6

• the work sheet
• the income statement
• the owner’s capital account in the general journal

Question 7

what is a balance sheet

Answer 7

a report of the balances in the permanent accounts on a specific date

Question 8

what is a report form

Answer 8

a balance sheet format that lists classifications one under another

Question 9

what are statements of cash flows

Answer 9

a financial statement that summarizes the cash receipts and cash payments resulting from business activities during a period

Question 10

what are ratio analysis

Answer 10

the process of evaluating the relationship between various amounts in the financial statements

Question 11

what is a profitability ratio

Answer 11

a ratio used to evaluate the earnings performance of the business during the accounting period

Question 12

what is return on sales

Answer 12

a ratio or percent that tells you how much profit you are receiving from your total revenue

Question 13

how can you find your return on sales

Answer 13

net income divided by total revenue

Question 14

what are current assets

Answer 14

assets that are used up or converted to cash during the normal operating cycle of the business (NOT INCLUDING EQUIPMENT)

Question 15

what are current liabilities

Answer 15

debts of the business that must be paid within the next accounting period

Question 16

what is working capital

Answer 16

the amount by which current assets exceed current liabilities
current assets - current liabilities = work capital

Question 17

what is a liquidity ratio

Answer 17

a measure of the ability of a business to pay its current debts as they become due and to provide for an unexpected need for cash

Question 18

what is a current ratio

Answer 18

the relationship between current assets and current liabilities
current assets divided by current liabilities
ex. 2:1 for every $1 in liabilities you have $2 in assets

Question 19

what is a quick ratio

Answer 19

a measure of the relationship between short-term assets and current liabilities
total cash and receivables divided by the currents liabilities