Financial Accounting Exam 1

Multiple Choice Only — Module 1, 2, 3, 11

Purpose of Financial Accounting

provide meaningful quantitative financial information regarding an entity’s activities to decision makers

What’s a 10K?

• A 10K is a form that is filed annually

• Its a form that is a primary place for financial statements, notes, and other extra info

• Only public companies are required to file a 10K

International Accounting

• US GAAP vs. International Financial Reporting Standards (IFRS)

• US companies have no choice but to use the GAAP standards, but other companies can choose what they want to use

• As of today, 80% of them are the same, but the 20% can have a huge difference

A category of account

• Assets:

What is valuable but can’t be put on a balance sheet, and why?

Intangible assets such as employees, strong management, a well-designed supply chain, superior technology, etc.

• Can’t be reliably measured

What is net income?

Net income is the profit of a company after all expenses, costs, and mandatory deductions (taxes, etc.) have been subtracted from revenue.

• revenue - expenses = net income

What is the balance sheet?

A balance sheet describes the sources and uses of funds of a firm at a point in time

• Snapshot at ONE moment in time

• Assets, liabilities, owners equity

• Assets listed in order of liquidity

• Liabilities listed in order of maturity

Accounting Equation

Assets = Liabilities + Owners Equity

Transactions and what impact they have on a balance sheet?

A transaction is an event that causes a change in balance sheet values

3 step process:

• determine which accounts are involved

• for each account, determine if + or -

• for each account, determine how much it changed

Assets, Dividends, and Expenses: left debit, right credit

Liabilities, OE, CS, RE, and Revenue: left credit, right, debit

Format of Balance Sheet

Example:

Retained Earnings

A company’s profits that haven’t been paid out to shareholders as dividends, but reinvested in the business. Saved for future use

• Updated each period

• Beg. RE + NI - Dividends = End RE

• Lifetime Net income and lifetime dividends

Purpose of Statement of Cash Flows

A financial statement that details a company’s cash inflows and outflows over a period of time.

Designed to show info about the change in the cash balance from first balance sheet to second balance sheet

• Operating activities

• Investing activities

• Financial activities