unit 1 | introduction to accounting

Question 1

similarities between private & public companies

Answer 1

• bank financing
• bond issuance
• internal & external reporting

Question 2

different stakeholders for internal & external reporting

Answer 2

internal: employees, executive teams (ex. ceo), management teams, private investors, bod

external: public investors, lending institutions, gov’t & regulatory bodies, suppliers, customers, communities

Question 3

accounting standards differences between internal & external reporting

Answer 3

internal: not required to follow GAAP

external: must follow GAAP

Question 4

level of detail (on fs) for internal & external reporting

Answer 4

internal: detailed report & in-depth analysis to support decision making, less detail in summary data

external: less detail in summary data

Question 5

how frequent should internal & external reporting be done?

Answer 5

internal: monthly, quarterly, yearly

external: quarterly, yearly

Question 6

how can internal & external reporting be compared?

Answer 6

internal: results vs budget/forecast, result vs prior year

external: result vs prior year

Question 7

what is ASPE

Answer 7

accounting standards for private enterprise
- used by private companies

Question 8

what is IFRS

Answer 8

international financial reporting standards
- used by private & public companies
- public companies must follow

Question 9

4 principle qualitative characteristics

Answer 9

1. understandability
2. relevance
3. reliability (economic activity, verifiable, free of error $ bias)
4. comparability

Question 10

assumptions of conceptual framework

Answer 10

1. going concern: company will continue to operate in the foreseeable future
2. separate- entity: personal transactions & properties are expected to be separated from business finances
3. historical cost: the value of a business transaction are primarily recorded at cost

Question 11

what does “note to financial statement” mean?

Answer 11

company might disclose more detailed information (revenue by product line)

Question 12

purpose of an income statement

Answer 12

(statement of profit and loss)
to understand a company’s profit and loss for a period

Question 13

basic equation for the income statement

Answer 13

total revenue - total expenses = net income

Question 14

purpose of statement of retained earnings

Answer 14

to understand the change in retained earnings for a period

Question 15

basic equation for statement of retained earnings

Answer 15

beginning retained earnings + net income - current period dividends = ending retained earnings

Question 16

purpose of a balance sheet

Answer 16

to understand the financial position of a company at a particular point in time

Question 17

what is the accounting equation

Answer 17

asset = liabilities + shareholder’s equity

Question 18

purpose of a cashflow statement

Answer 18

to understand sources & uses of cash during a period

Question 19

basic equation for cash flow statement

Answer 19

operating cash flows + investing cash flows + financing cash flows = net increase/decrease in cash for a period + cash balance at beginning of period = cash balance at end of period