Chapters 1-6

Question 1

For-profit Organizations

Answer 1

Public Companies + Private Companies =

Need money from investors, creditors…

Question 2

Not-for-profit Organizations

Answer 2

Need donations for donors

Question 3

Who uses financial accounting information?

Answer 3

• external users

- internal users

Question 4

External Users

Answer 4

• Shareholders / Owners
• Potential Investors
• Creditors
• Others

Question 5

Internal Users

Answer 5

• Board of Directors

- Management

Question 6

The Basic Accounting Equation

Answer 6

Assets = Liabilities + Owner’s / Shareholder’s Equity

Question 7

Assets

Answer 7

Economic resources that are expected to produce a benefit in the future

Question 8

Liabilities

Answer 8

“Outsider Claims”

Economic obligations payable to outsiders

Question 9

Owner’s / Shareholder’s Equity

Answer 9

“Insider Claims” of a business

Question 10

Shareholder’s Equity is divided in…

Answer 10

1) Contributed Capital

2) Retained Earnings

Question 11

Contributed Capital

Answer 11

The amount invested in the corporation by its owners

Question 12

Common Shares

Answer 12

The basic component of contributed capital

Question 13

Retained Earnings

Answer 13

The amount earned by income-producing activities and kept for use in the business

Question 14

Net Income Formula

Answer 14

Net Income = Total Revenue - Total Expenses

Question 15

Revenues

Answer 15

Increases in retained earnings from delivering goods and services to customers

Question 16

Expenses

Answer 16

Decreases in retained earnings that result from operations

Question 17

4 Financial Statements

Answer 17

1) Income Statement
2) Statement of Changes in Equity
3) Statement of Financial Position (Balance Sheet)
4) Statement of Cash Flows

Question 18

Income Statement

Answer 18

Reports revenues and expenses for a specific period of time

Question 19

Statement of Changes in Equity

Answer 19

Reports the changes in each component of equity during a period of time

Question 20

Statement of Financial Position (Balance Sheet)

Answer 20

Shows the assets, liabilities and shareholder’s equity at a specific point in time

Question 21

Statement of Cash Flows

Answer 21

Shows how a company obtained cash and how that cash was used for a specific period of time

Question 22

Steps for Income Statement

Answer 22

1) Company Name
2) Year ended…
3) Income Statement
4) Revenues
5) Expenses
6) Net Income before taxes
7) Net Income / Net Loss

Question 23

Steps for Statement of Changes in Equity

Answer 23

• List in Horizontal Top Row*
  1) Common Shares
  2) Retained Earnings
  3) Total Equity)
• List in Vertical Right Row*
  1) Balance, beginning
  2) Stuff
  3) Balance, end

Put in proper rows and add up

Question 24

Steps for Statement of Financial Position (Balance Sheet)

Answer 24

1) List all Assets
2) Total Assets
3) List all Liabilities
4) Total Liabilities
5) List all Shareholder’s Equity
6) Total Shareholder’s Equity
7) Total Liabilities + Total Shareholder’s Equity

Question 25

Current Assets

Answer 25

Assets expected to be converted to cash or used in the business within 1 year or 1 operating cycle
* listed in order of equity*

Question 26

Current Assets Examples

Answer 26

• cash
• short-term investments
• accounts receivable
• merchandise inventory
• prepaid expenses

Question 27

Non-Current Assets

Answer 27

Assets not expected to be converted to cash or used in the business within 1 year or 1 operating cycle

Question 28

Non-Current Assets Example

Answer 28

• long-term investments
• property, plant, equipment (PPE)
• intangible assets / goodwill
• other assets

Question 29

Long-Term Investments

Answer 29

Investments in:

• Debt securities (loans, notes, bonds, mortgages)
• Equity securities (shares of other companies)

Not normally intended to be sold within 1 year

Question 30

Property, Plant, Equipment (PPE)

Answer 30

• Assets with normally long useful lives
• Used in operating the business
• Listed in order of permanency