Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CMA > External Financial Statements & Revenue Recognition > Flashcards

External Financial Statements & Revenue Recognition Flashcards

1
Q

What is the purpose of financial reporting?

A

To report financial information that is useful in decision making about providing resources to the entity. This information includes the entity resources, claims against those resources, and changes in the resources and claims

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does financial information help external users evaluate?

A

Liquidity, solvency, financing needs and the probability of obtaining financing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What standard must US financial reports comply with

A

G.A.A.P

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How does management accounting differ from financial accounting?

A

Management accounting is useful for internal users and assists management with decision making, planning and controls. It does not need to follow G.A.A.P.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What type of users have a direct interest in the financial statements

A 
Investors & Managers which includes:
Investors or potential investors
creditors & suppliers
employees
management
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What type of users have an indirect interest in the financial statements?

A

Users with indirect interest advise, influence or represent users with direct interest which includes:
financial advisors & analysts
stock markets or exchanges
regulaory authorities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Why are the financial statements important?

A

Primary means of communicating financial info to external parties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the importance of the notes to the financial statement?

A

They are considered a part of the financial statements and amplify and/or explain info in the financial statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is included in a full set of financial statements?

A 
Statement of Financial Position ( Balance Sheet)
Income Statement
Statement of Comprehensive Income
Statement of changes in equity
Statement of Cash flows
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How must information in the Financials be presented to be useful?

A

Relevant and Faithfully Represented. Comparability enhances the usefulness of the Financials

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Financial statements are prepared with what assumption?

A

The going concern assumption

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the relationship between financial statements?

A

Net income/loss (income statement) is closed off and accumulated in retained earnings (balance sheet)

  • Components of cash & equivalents in the Balance sheet is reconciled with corresponding items in the cash flow
  • Equity section of the balance is reconciled to the beginning balance on the statement of changes in equity
  • Ending inventory reported on the balance sheet is reported in the cost of goods sold on the income statement
  • Amortization and depreciation reported in the income statement is reflected in the asset and liability section of the balance sheet
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What basis of accounting are the financials prepared?

A

Accrual basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When is revenue recognized?

A

Revenue is recognized when realize or realizable and earned

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When are expenses recognized?

A

Expenses are recognized with incurred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the elements of a balance sheet?

A

Asset, liability and equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Define an asset?

A

Probable future economic benefit controlled by an entity as a result of past transactions or events

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Define liability

A

Probable future sacrifices of economic benefit. Present obligations of an entity arising from past transactions or event

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Define equity

A

Equity is the residual interest in the company after subtracting its liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is a current asset?

A

An asset which benefit will expire within a year or the operating cycle of the entity whichever is longer. e.g. cash & cash equivalent, prepaid expenses, receivable, inventory, certain individual trading, available for sale, and held to maturity securities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is a non current asset?

A

An asset whose benefit will last longer than a year. e.g.

investments and funds, property plant and equipment, intangible assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are current liabilities?

A

Obligations expected to be settled or liquidated in the ordinary course of business within a year or the business operating cycle whichever is longer. eg. payable, unearned revenue, other obligation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are non current liabilities?

A

Obligations with a life span of longer than a year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the elements of equity?

A

Tresury Stock, other comprehensive income, retained earning, capital contributed by owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are some of the note disclosures related to the Balance Sheet?

A

Investment securities, maturity patterns of bond issues, significant uncertainties, details of capital stock issues

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are the elements of an Income Statement?

A

Revenue, Expenses, Gains, Loses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What elements are not included in income?

A

transactions with owners, prior period adjustments, retained earning, items reported initially in other comprehensive income

28
Q

What is the Matching principle?

A

The matching principle is when expenses are matched to the same period as the related revenue

29
Q

What is the formula for cost of goods sold for a retailer

A

Beginning inventory+purchases+freight in - ending Inventory

30
Q

What is the formula for cost of goods sold for a manufacturer?

A

Beginning Raw Materials + purchases of raw materials - ending raw materials = direct materials used in productions + direct labour cost + manufacturing overhead = total manufacturing costs + beginning work in process inventory - ending work in process inventory = cost of good manufactured + beginning finished goods inventory - ending finished goods inventory = cost of goods sold

31
Q

Where and how are irregular items reported on the income statement?

A

They are reported after income from continuing operations, and they are also reported net of tax

32
Q

What are limitations of the balance sheet?

A

BS shows financial position at a single point in time, BS items are valued at historical cost as oppose to fair value, preparation of the BS requires estimates and mgmt. judgement

33
Q

How many components could discontinued operations have?

A
  • income or lose from operations of a component classified as held for sale or has been disposed of from the first day of the reporting period to the date of disposal
  • Gain/loss on the disposal of the component
34
Q

What are the two components of extra-ordinary items?

A

-unusual in nature
-infrequent in occurrence
If only one of the criteria is meet the item is reported separately as a component of income from continuing operations

35
Q

How does IFRS handle extraordinary items

A

No items are reported as extraordinary on the income statement, comprehensive income and notes

36
Q

What are the major notes disclosure of the income statement?

A

earnings per share, depreciation schedule, components of income tax expense, components of pension expense

37
Q

What are the limitations of the income statement?

A
  • does not show all items of income & expense. For example those transaction captured by Other Comprehensive Income
  • Net Income may not be a true picture of cash and liquidity of the business as revenue is recognized on an accrual basis
  • requires estimates and mgmt. judgement
38
Q

What is comprehensive income?

A

All changes in equity (net assets) of a business except those from investments by and distributions to owners

39
Q

What is included in the calculation of other comprehensive income?

A
  • the effective portion on the gain/loss on a hedging instrument in a cash flow hedge
  • unrealized holding gains/losses in the fair market value of available for sale securities
  • translation gains/losses on financial statement for foreign operations
  • Certain amounts associated with accounting for defined benefit postretirement plan
40
Q

What is a statement of changes of equity?

A

It shows a reconciliation for the accounting period the beginning balance for each component of equity to the ending balance. Each component is disclosed separately in the statement

41
Q

What are common changes in equity components?

A
  • Net income (loss) for the period which increases or decreases retained earning
  • Distributions to owners which decreases retained earnings
  • Issuance of common stock
  • Total change in other comprehensive income
  • Repurchase of common stock (treasury stock) which decreases the total shareholders equity
42
Q

What is the formula to reconcile retain earnings?

A

Beginning retained income + net income(loss) for the period-dividend distributed during the period + positive or negative prior period adjustment = retained earnings ending balance

43
Q

What are prior period adjustments?

A

Prior period adjustment includes the cumulative effect of a change in accounting principle and also the correction of prior period error/s on the Financial Statements

44
Q

How does prior period adjustments affect the financial statements?

A

They affect the financial statements retroactively that is the cumulative effect of the change or error is shown and the accounts of the first reported affected accounting period are adjusted as necessary

45
Q

How do changes in accounting estimate affect the financial statements

A

They are reported prospectively so no adjustment is necessary

46
Q

Can retained earnings be restricted?

A

Yes for special purposes or legal action etc. this restriction is limited to cash and not assets of the business. Retained earnings be restricted does not affect net income

47
Q

What does stock authorized mean?

A

The maximum amount of stock a company is legally allowed to issue

48
Q

What does stock issue mean?

A

The amount of authorized stock that the company has issued (decided) to sell

49
Q

What does outstanding stock mean?

A

The amount of issued stock that has been sold and are held by shareholders

50
Q

What is the entry to record issuance of stock

A

Dr Cash
Cr - Stock account (common stock @ par value)
CR - Additional paid in capital

51
Q

How are direct cost of issuing stocks handled?

A

They are not expensed, instead they reduce the net proceeds and additional pain in capital

52
Q

When is a cash dividend recorded?

A

A cash dividend is recorded on the date of declaration

53
Q

What is the entry to record a cash dividend on the date of declaration

A

DR Retained Earnings

CR Dividends Payable

54
Q

What is the entry to record a cash dividend on the date of payment

A

DR Dividends Payable

CR Cash

55
Q

What happens when a property dividend is declared instead of a cash dividend?

A
  • the property is remeasured for Fair Value
  • Retained earnings is reduced (DR) for the amount of the Fair Value of the property
  • The property is distributed as a dividend
56
Q

What is the entry of the date of declaration of a property dividend

A

DR Property (land eg)
CR Gain on assessment of FV
DR Retained Earnings
CR Property Dividends Payable

57
Q

What is the entry of the date of payment of the property dividend?

A

DR Property Dividend Payable

CR Land

58
Q

What is the entry for a stock dividend less than 20-25%

A
  • recognize entry as a stock dividend
    DR Retained Earnings
    CR Common Stock (par value)
    CR Additional Paid-in Capital
59
Q

What is the entry for a stock dividend more than 20-25%

A

Recognize entry as a stock split
DR. Retained Earnings
CR Common Stock

60
Q

What is the primary purpose of the cash flow statement?

A

To provide relevant information about an organization cash receipt and expenses of an entity in a given period. It helps users determine the liquidity of a business, financial flexibility and the ability to generate positive future net cash flows

61
Q

What are the components of a cash flow statement

A

Operating, investing and financial activities

62
Q

What are operating activities?

A

Operating activities are all transactions and event nor derived from investing and financial activities, usually derived from main revenue producing activities of the organization

63
Q

What are investing activities?

A

The extent to which expenditures have been made to for resources to generate future income and cash flows

64
Q

What are financing activities?

A

The cash effects of transactions and other events that relate to the issuance, settlement and reacquisition of a companies debt and equity instruments

65
Q

How are noncash investing and financing activities handled?

A

They are disclosed in the notes to the FS

CMA (1 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions