Introduction to Financial Statements and Business Organization Types in Accounting

What are the three principal types of business activity?

Operating, Investing, and Financing activities.

Companies prepare four financial statements from the summarized

accounting dat

Income statement reports the success or profitability of the

company's operations over a specific period of time.

• Retained earnings statement reports the changes in retained

earnings over a specific period of time.

• Balance sheet reports the assets, liabilities, and stockholders'

equity at a specific date.

• Statement of Cash Flows reports the sources and uses of cash

for the 3 business activities (Financing, Investing, Operating)

over a specific period of time

basic accounting eq

assests = liabilities + stockholder equity

What are the four financial statements?

Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows.

What does the Income Statement report?

The success or profitability of the company's operations over a specific period of time.

hat financial statement is completed first?

A. The order doesn't matter

B. Statement of Cash Flows

C. Income Statement

D. Retained Earnings Statemen

income statement

Which of the following financial statements is prepared as of a

specific point in time?

A. Balance sheet.

B. Income statement.

C. Retained earnings statement.

D. Statement of cash flows.

balance sheet

What does the Retained Earnings Statement report?

The changes in retained earnings over a specific period of time.

What is a Corporation?

A form of business organization that is easier to transfer ownership, raise funds, and has no personal liability.

What is a Sole Proprietorship?

A simple business organization that is owner-controlled and has tax advantages.

2. (LO 1) Which is an advantage of corporations relative to partnerships and sole proprietorships?

Lower taxes.

Harder to transfer ownership.

Reduced legal liability for investors.

Most common form of organizatiib

Reduced legal liability for investors.

What is a Partnership?

A business organization that shares control and has broader skills tax advantage

Who are Internal Users of financial information?

Individuals within a company who use financial information for decision-making.

Who are External Users of financial information?

Individuals outside the company, such as customers and regulators, who use financial information.

What is the accounting equation?

Assets = Liabilities + Equity.

the first financial statment to prepare is the

net income statement

What is the purpose of the annual report for publicly traded companies?

To provide shareholders with financial statements, management discussion and analysis, notes to the financial statements, and the auditor's report.

What is included in the notes to the financial statements?

Additional details to make financial statements more meaningful.

Net income will result during a time period when:

assets exceed liabilities.

assets exceed revenues.

expenses exceed revenues.

revenues exceed expenses.

revenues exceed expenses.

The financial statements for Macias Corporation contained the following information.

Accounts receivable

$ 5,000

Sales revenue

75,000

Cash

15,000

Salaries and wages expense

20,000

Rent expense

10,000

What was Macias Corporation's net income?

45,000

SALE rev - sal & wag exp - rent exp

2. (LO 3) Indicate whether the following items would appear on the income statement (IS), balance sheet (BS), or retained earnings statement (RES).

Common stock.

Cash.

Salaries and wages expense.

Service revenue.

Accounts payable.

common stock : balance sheet

cash : balance sheet

salaries and wage expense : is (income statment)

service rev : is

accounts payable : Balance sheet

d. Net income = Sales revenue ($75,000) − Salaries and wages expense ($20,000) − Rent expense ($10,000) = $45,000. The other choices are therefore incorrect.

d. Net income = Sales revenue ($75,000) − Salaries and wages expense ($20,000) − Rent expense ($10,000) = $45,000. The other choices are therefore incorrect.

The element of a corporation's annual report that describes the corporation's accounting methods is/are the:

notes to the financial statements.

management discussion and analysis.

auditor's report.

income statement.

notes to the financial statements.

What is the auditor's report?

An independent auditor's opinion on the fairness of financial statements and their conformity with GAAP.

What is the time period for the Retained Earnings Statement?

The same time period as the Income Statement.

Net income will result during a time period when:

assets exceed liabilities.

assets exceed revenues.

expenses exceed revenues.

revenues exceed expenses.

revenues exceed expenses.

Which financial statement is prepared first?

The order of preparation does not matter, but typically the Income Statement is completed first.

What was Macias Corporation's net income?

Accounts receivable

$ 5,000

Sales revenue

75,000

Cash

15,000

Salaries and wages expense

20,000

Rent expense

10,000

Net income = Sales revenue ($75,000) − Salaries and wages expense ($20,000) − Rent expense ($10,000) = $45,000.

sr - sw - re =

Classify each item as an asset, liability, common stock, revenue, or expense.

1 - Amount recorded from performing services.

2 - Amounts owed to suppliers.

1 - revenue

2 - liability

Which financial statement is prepared as of a specific point in time?

The Balance Sheet.

What are the types of accounts in accounting?

Assets, Liabilities, Equity, Revenue, and Expense.

What is the role of the Balance Sheet?

To provide a snapshot of a company's financial position at a specific date.

What is the purpose of the Statement of Cash Flows?

To report the cash inflows and outflows from operating, investing, and financing activities.

Which is an advantage of corporations relative to partnerships and sole proprietorships?

Reduced legal liability for investors.

What is the relationship between the Income Statement and the Retained Earnings Statement?

Net income from the Income Statement is added to the beginning retained earnings to calculate the ending retained earnings.

What does the ending balance in cash represent?

It should tie between the Balance Sheet and the Statement of Cash Flows.

What is the significance of the fiscal year for a corporation?

It defines the period for which the financial statements are prepared.

Which of the following did not result from the Sarbanes-Oxley Act?

Top management must now certify the accuracy of financial information.

Penalties for fraudulent activity increased.

Independence of auditors increased.

Tax rates on corporations increased.

Tax rates on corporations increased.

Which is not one of the three primary business activities?

Financing.

Operating.

Advertising.

Investing.

advertising

Which of the following is an example of a financing activity?

Issuing shares of common stock.

Selling goods on account.

Buying delivery equipment.

Buying inventory.

Issuing shares of common stock.

Which statement about users of accounting information is incorrect?

Management is considered an internal user.

Taxing authorities are considered external users.

Present creditors are considered external users.

Regulatory authorities are considered internal users.

Regulatory authorities are considered internal users.

What is the ticker symbol for Costco Wholesale Corporation?

COST.

What are the core business segments of Costco?

Foods & Sundries, Non-Foods, and Fresh Foods.