Financial Accounting Final Exam (Chp. 1-3)

Front 1

The financial accounting role of SEC

Back 1

The Securities and Exchange Commission sets the rules for stock exchanges & for the financial reporting of publicly-traded corporations for the entire U.S. It also gives the Financial Accounting Standards Board (FASB) the authority to set financial accounting standards.

Front 2

The financial accounting role of an auditor is...

Back 2

to provide an unbiased evaluation of a firm’s financial position and performance.

Front 3

Revenues (define & identify)

Back 3

The amount earned from providing goods or services to customers. Revenues = Net Income + Expenses.

Front 4

Income Statement (define)

Back 4

The income statement shows all revenue and all expenses over a period of time – a quarter, a month, or a year.

Front 5

Balance Sheet (define)

Back 5

The balance sheet shows a summary of each element of the accounting equation: assets, liabilities, and shareholders’ equity. The summary is shown at a specific point in time.

Front 6

Accounting Equation

Back 6

Assets = Liabilities + Shareholder’s Equity [contributed capital, retained earnings].

Front 7

Gross Profit (calculate)

Back 7

Gross profit = sales – cost of goods sold. The gross profit ratio: (Sales – Cost of Goods sold) / Sales. The ratio evaluates a firm performance & profitability.

Front 8

The effect of the Matching Principle on financial statements

Back 8

The matching principle says that expenses should be recognized—shown on the income statement—in the same period as the revenue they helped generate. Accrual accounting follows the matching principle.

Front 9

Identify characteristics of useful financial information

Back 9

>>>To be useful…

a. Relevant (it has to be significant enough to influence a business decision; it must be timely)
b. Reliable (must be dependable & verify it’s accuracy)
c. Comparable (investors must be able to compare financial information between 2 different companies within the same industry)
d. Consistent (must be able to compare within the same company across different periods of time [from year-to-year]; account rules & principles must be applied consistently)

Front 10

The effect on financial statements of accrual & deferral adjustments

Back 10

Do the study plan (3.2 and 3.3) on MyAccounting Lab.

Front 11

Identify accounts affected by adjustments (in accruals & deferrals)

Back 11

Refer to your September 8th notes.

Front 12

Net income (flow between financial statements)

Back 12

Based off of p.22 in the book, net income is listed at the very bottom on an Income Statement. Then in the Statement of Changes in Shareholder’s Equity, it is located in the mid-section under “beginning balance” under Retained Earnings. Also, p. 18 pointed out that dividends are excluded from the income statement.

Front 13

Accounts payable (which is a liability) is.....

Back 13

ALWAYS current.

Front 14

Materiality is.....

Back 14

the measurement of the size/significance of a financial decision in relation to the company’s overall financial performance or financial position.

Front 15

Current ratio (define & identify)

Back 15

A liquidity ratio that measures a firm’s ability to meet its short-term obligations.

Current ratio = (Total current Assets) / (Total current Liabilities)

Front 16

Interest (the equation)

Back 16

Interest = Principal × Rate (%) × Time

(e.g. Interest = $200 × 0.10 × 3 months/12 months)

Front 17

The amount in supplies when purchased is.....

Back 17

an asset.

Front 18

When you initially record an accrual (before any adjustments are made), it.....

Back 18

NEVER affects cash.