Financial Reporting Mechanics

Question 1

Financial statement elements are the major classifications of assets, liabilities, owners’ equity, revenues and expenses.

Answer 1

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Question 2

Chart of Accounts

Answer 2

Detailed list of the accounts that make up the five financial statement elements, and the line items presented in financial statements

Question 3

Contra Accounts

Answer 3

Used for entries that offset some part of the value of another account. (i.e. accumulated depreciation)

Question 4

Examples of Assets:

Answer 4

• Cash and Cash Equivalents
• Accounts Receivable
• Inventory
• Financials
• Prepaid Expenses
• Property, Plant, and Equipment
• Deferred Tax
• Intangible Assets
• Accumulated Depreciation

Question 5

Examples of Liabilities:

Answer 5

• Accounts payable
• Financial liabilities
• Unearned revenue
• Income Taxes Payable
• Long Term Debt
• Deferred Tax Liabilities

Question 6

Examples of Owners’ Equity:

Answer 6

• Capital
• Retained Earnings
• Other Comprehensive Income

Question 7

Examples of Revenue:

Answer 7

• Sales
• Gains
• Investment Income

Question 8

Examples of Expenses:

Answer 8

• COGS
• SG & A
• Annual Depreciation
• Tax Expense
• Losses
• Interest Expense

Question 9

Basic Accounting Equation:

Answer 9

Assets = Liabilities+ Owners’ Equity

Question 10

Expanded Accounting Equation

Answer 10

Assets = Liabilities + contributed capital + ending Retained earnings

((Ending RE = beginning RE + Revenue - Expenses - Dividends))

• Assets = liabilities + contributed capital + beginning RE + Revenue - Expenses - Dividends

Question 11

Accrual Accounting

Answer 11

Revenue is recorded when the firm earns it and expenses are recoded as the firm incurs them, regardless if cash was paid.

Question 12

4 categories of accruals:

Answer 12

1. Unearned revenue: cash before the service is given
2. Accrued Revenue: service delivered before cash was received
3. Prepaid Expenses: Cash paid for the anticipated expense
4. Accrued Expenses: Cash is owed for expenses that are already incurred.

Question 13

Valuation

Answer 13

Accounting entries that update these assets’ values to current present values.

Question 14

4 steps of the flow of information in an accounting system:

Answer 14

1. Journal entries: record every transaction in general journal
2. General ledger: sorts entries in the general journal by account
3. Initial trial balance shown and if adjustments are needed, adjusted trial balance shows us.
4. Accounting balances are presented in financial statements.