Chapter 1: Types of Financial Statements

Question 1

Income Statement

Answer 1

Summary of revenue and expenses over time, shows net income or net loss

Question 2

Statement of Retained Earnings

Answer 2

Changes in retained earnings over time, includes beginning retained earnings, net income, dividends, and ending retained earnings

Question 3

Balance Sheet

Answer 3

Assets, Liabilities, and Stockholder’s Equity on a specific date (snapshot in time)

Question 4

Statement of Cash Flows

Answer 4

Reports cash in and cash out, not including purchase of supplies on account (accounts payable on balance sheet)

Question 5

Three categories of cash flow

Answer 5

1) Operating activities
2) Investing activities
3) Financing activities

Question 6

Operating activities

Answer 6

Cash receipts from customers for services and cash payments on expenses

Question 7

Investing activities

Answer 7

Cash purchases and sales of land and equipment

Question 8

Financing activities

Answer 8

Cash contributions by stockholders, dividends paid, cash in from borrowers, cash out from loans

Question 9

Calculating Return on Assets (ROA)

Answer 9

ROA = Net income / Average total assets
Average total assets = (Beginning total assets + Ending total assets) / 2

Question 10

Return on Assets (ROA)

Answer 10

How profitably a company uses its assets