Quiz Module 4 ?s Flashcards
Which answer best defines financial statements in general?
An analysis of the flow of cash into and out of a business
A detailed report of a company’s income and expenses
A collection of reports that describes a company’s financial activities to a third party
A listing of a company’s assets and liabilities
A collection of reports that describes a company’s financial activities to a third party
Which answer gives the best example of a factor that can be determined through an analysis of a company’s financial statements?
All of these answers
The company’s profitability
The accuracy of the company’s tax returns
The company’s creditworthiness
All of these answers
Which answer is not one of the four basic GAAP principles?
Deciding which information to disclose should be based on a trade-off analysis
Revenue should be recorded when realized or realizable and when cash is received
Expenses should be recognized when the product it is associated with generates recognized revenue
Assets and liabilities should be reported based on acquisition cost
Revenue should be recorded when realized or realizable and when cash is received
Which answer best summarizes why there may be a difference between a company’s pretax income and taxable income?
The tax code requires full disclosure, GAAP does not.
GAAP requires that companies use historical costs, while the tax code does not.
All of these answers are correct.
Pretax income is based on revenue recognition; taxable income is based on the company’s cash flow.
Pretax income is based on revenue recognition; taxable income is based on the company’s cash flow.
Which answer does not describe a step in constructing a multi-step income statement?
Subtract non-operating expenses from income from operations.
Add all revenues, then subtract all expenses.
Subtract income tax expense from income before taxes.
Subtract operating expenses from gross profit to determine income from operations.
Add all revenues, then subtract all expenses.
