Chapters 1 and 2: Study Guide Material

Question 1

What are the three types of business formations?

Answer 1

• sole proprietorship
• partnership
• corporation

Question 2

Who are the uses of a businesses information?

Answer 2

• owners

- creditors

Question 3

Assets=?

Answer 3

liabilities + stockholder equity

Question 4

What are the two major sources of stockholders’ equity?

Answer 4

• common stock

- retained earnings

Question 5

Net Income=?

Answer 5

revenues-expenses

Question 6

The balance sheet covers….

Answer 6

all the events/transactions that have affected each of the categories since the inception of the business

Question 7

Operating activities

Answer 7

-involves cash and other accounts typically relates to net income and changes in current assets and current liabilities

Question 8

Investing Activities

Answer 8

relate to changes in long-term assets

• buy or sell long term assets
• lend money or collecting money back

Question 9

Financing Activities

Answer 9

-relate to dealings with long term creditors and owners

• borrowing or paying back principal
• owners invest in business or distributions to owners

Question 10

Income statement shows what

Answer 10

expenses incurred

Question 11

Statement of Cash Flows shows what

Answer 11

expenses paid

Question 12

Balance sheet shows

Answer 12

expenses still owed

Question 13

who is GAAP developed by?

Answer 13

FASB(financial accounting standards board)

Question 14

who does the FASB get its power from?

Answer 14

the SEC( securities and exchange commission)

Question 15

CPA code of conduct

Answer 15

-integrity
-objectivity
independence
-due care

Question 16

the audit is signed on what basis?

Answer 16

• presents fairly(due to estimates)
• in all material respects
• in conformity with GAAP
• CPA must provide assurance as to the effectiveness of the internal controls of the business

Question 17

Four World Wide CPA firms

Answer 17

• kpmg
• deloitte
• Pricewaterhouse Coopers
• Ernest and young

Question 18

2nd tier firms

Answer 18

• Protiviti
• Grant thornton
• BDO

Question 19

Regional firms

Answer 19

Parente Beard

Question 20

Management discussion and analysis

Answer 20

is a required section of the annual report

it highlights trends,significant events and uncertainties regarding its operations, investing and financing activities

Question 21

Two points on Assets

Answer 21

• they will provide future benefits to the owner

- they are recorded at original cost less adjustments

Question 22

Statement of cash flows only records revenues….

Answer 22

when cash is received regardless of when the service is performed

Question 23

What does the balance sheet not show? but what does it show

Answer 23

• the worth of the business
• the assets at cost
• the financing/funding behind those assets

Question 24

True or False: Revenues can come before,after, or during the transaction?

Answer 24

True

Question 25

Net Income on the Income Statement Does Not Equal

Answer 25

Cash,Change in Cash, Cash From Operating Activities or Retained Earnings

Question 26

Who has primary responsibility for the accuracy of the financial statements?

Answer 26

-managers

Question 27

What happens when fraudulent statements are presented?

Answer 27

-jail time for executives

Question 28

What is the MD&A?

Answer 28

management discussion and analysis section - it is a part of financial report - highlights trends, significant events, and uncertainties regarding its operations, investing, and financing activities

Question 29

What is the primary goal of FASB?

Answer 29

to collect all authoritative literature related to a particular topic in one place

Question 30

What is the CRS?

Answer 30

Codification Research System which is an on-line, real-time data base that provides easy access to the Codification

Question 31

How many countries permit the IFRS?

Answer 31

115 countries

Question 32

Why is the implementation of a world-wide accounting system difficult?

Answer 32

-different users need

Question 33

Principles vs Rules: GAAP vs IFRS

Answer 33

IFRS is based on principles GAAP is more detail oriented and considered rules-based

Question 34

What term does the IFRS use for balance sheet?

Answer 34

Statement of Financial Position

Question 35

What makes the government and charitable organizations?

Answer 35

- they have no profit motive | - big difference is there is no stockholders' equity section

Question 36

Besides borrowing money what else can a corporation do to get money?

Answer 36

-issuing bonds

Question 37

Who are the other external users of information?

Answer 37

- Internal Revenue Service and Securities Exchange Commission - management and employees

Question 38

Impediments for IFRS

Answer 38

- where is the funding and authority for IASB | - Sarbane Oxley Act of 2002

Question 39

What do both systems use fair value or historical cost?

Answer 39

fair value

Question 40

Statement of Cash Flows Points

Answer 40

- cash receipts(inflows) minus cash disbursements(outflows) - organized according to business activity category - balance and income statement provide insight in these activities

Question 41

What does the balance sheet show in relation to assets?

Answer 41

- statement from handout about beginning... | - the assets at cost and the financing/funding behind those assets