Financial Statements

Question 1

Where is Sales and Revenue located on the Income Statement

Answer 1

Top of the line

Question 2

Where do you find Profits Earnings and Income on the Income Statement?

Answer 2

Bottom Line

Question 3

What are profit earnings and income?

Answer 3

It is what is left over after all the costs and expenses spent in generating that revenue are subtracted

Question 4

Costs

Answer 4

Money (mostly for materials and labor spent making a product)

Question 5

Expenses

Answer 5

Money spent to develop, sell, account and manage the entire making and selling process

Question 6

Sales is the equivalent to_________.

Answer 6

Revenue

Question 7

Profit, earnings and income are________.

Answer 7

the same

Question 8

Revenue and income are _________.

Answer 8

Different

Question 9

Costs are ______than expenses.

Answer 9

Different

Question 10

Expenses are ________ from expenditures.

Answer 10

Different

Question 11

Sales are _________ from orders, but same as __________.

Answer 11

Different, Shipments

Question 12

Profits are _______from cash.

Answer 12

Different

Question 13

Solvency is ________from profitability.

Answer 13

Different

Question 14

Costs and Expenses become ________, when money is sent to vendors to pay for them.

Answer 14

Expenditures

Question 15

Orders

Answer 15

Signify a request for future delivery of products

Question 16

When is a sale made?

Answer 16

when shipped

Question 17

Solvency

Answer 17

Having enough money in the bank to pay bills

Question 18

Profitability

Answer 18

When sales are greater than costs and expenses

Question 19

Insolvent

Answer 19

When making money, but still don’t have enough money to pay bills.

Question 20

Accounting Entity

Answer 20

• Business Unit
• A business entity separate from its owners
• A fictional person called a company for which books are written

Question 21

Going Concern

Answer 21

Assumption that the life of a business entity is infinitely long.
If concerned about going bankrupt, must issue a qualified opinion.

Question 22

Measurement

Answer 22

Quantified resources and obligations upon which there is agreed upon value.
Accounting deals with things that can be measured.

Question 23

Assets - Liabilities =

Answer 23

Owner’s Equity

Question 24

Units of Measure

Answer 24

U.S dollars are reported in Financial Statements

Question 25

Historical Cost

Answer 25

What a company owns and with it owes are recorded at their original historic cost with no adjustment for inflation.

Question 26

Materiality

Answer 26

• Relative importance of different financial information.
• All transaction must be reported if they would materially affect the financial condition of the company.
• Making a straightforward judgement call.

Question 27

Estimates and Judgements

When is it okay to guess?

Answer 27

1) When it is the best you can do
2) When the expected error would not matter much anyway

The same method should be used for each period.

Question 28

Consistency

Answer 28

Each individual enterprise must choose a single method of reporting, use consistently over time. No switching.

Question 29

Conservatism

Answer 29

Downward measurement bias, prefer to underestimate than to overevaluation

Question 30

Periodicity

Answer 30

Fiscal periods

Question 31

Substance over form

Answer 31

Accountants report the economic substance of a transaction rather than just its form.

Question 32

Accrual Basis of Presentation

Answer 32

Matching a presentation with the revenue received in selling product and the costs to are the specific product sold.

Question 33

Keys to Accrual Accounting

Answer 33

1) when you report a sale on the Fin Statement
2) matching and then reporting the approx costs of products sold
3) using a systematic and rational method of allocating all the other costs during a period.

Question 34

Revenue Recognition

Answer 34

Sales are recorded when all necessary activities to provide the good or service have been completed, regardless of when cash changes hands.
Ex. Revenue recorded when products has shipped.

Question 35

Matching Principle

Answer 35

Costs associated with making products (costs of goods sold) are recorded at the same time the matching revenue is recorded.

Question 36

Allocation

Answer 36

Costs not associated with a product must be allocated to fiscal periods in a reasonable fashion.

Question 37

Financial Accounting Standards Board

Answer 37

Lays out GAAP conventions, rules, and procedures.
Mission: To establish and improve standards of financial accounting and reporting for guidance and education of the public, issues,auditors and users of financial information.

Question 38

Generally Accepted Accounting Principles

Answer 38

Series of rules and procedures for preparing and reporting financial statments

Question 39

Securities Exchange Commission

Answer 39

Designates FASB as the organization responsible for setting standards

Question 40

Certified Public Accountant (CPA)

Answer 40

Involved in developing interpreting and applying GAAP when auditing companies.