Session 1

Question 1

The Accounting Equation

Answer 1

Assets = Liabilities + Equity

Question 2

Two ways to represent the Accounting Equation

Answer 2

A = L + OE

A - L = OE

Question 3

What two numbers are always equal?

Answer 3

Total Assets and Total Liabilities & Equity

Question 4

What is the most fundamental concept in accounting?

Answer 4

The Accounting Equation

Question 5

What other name is the Balance Sheet called?

Answer 5

Statement of Financial Position

Question 6

What are financing activities?

Answer 6

Methods that companies use to raise the funds to pay for resources such as land, buildings, and equipment

Question 7

What are the two sources of financing?

Answer 7

Equity financing

Creditor financing

Question 8

Equity Financing

Answer 8

resources contributed to the company by it’s owners along with any income retained by the company. No requirement to pay back.

Question 9

Creditor Financing

Answer 9

Resources contributed to the company from nonowners. Is considered more risky. Legal obligation to repay amounts borrowed, usually with interest.

Question 10

Three ways to financing a company

Answer 10

Debt or liability (Creditor financing)

Internal equity (net income)

External equity (Stock)

Question 11

GAAP

Answer 11

Generally Accepted Accounting Principles

Question 12

Who has the authority for standards setting?

Answer 12

SEC, but generally delegates that to FASB

Question 13

What is FASB

Answer 13

Financial Accounting Standards Board

Question 14

The Main Financial Statements

Answer 14

Balance Sheet

Income Statement

Statement of Cash Flows

Statement of Stockholder’s Equity

Question 15

Balance Sheet

Answer 15

Assets, liabilities and equity at one point in time
Permanent accounts, balance carries over.

GAAP says must show two years.

Question 16

Income Statement

Answer 16

revenues, expenses, and profit over a period of time. Temporary accounts that are zero-d out at the start of new period.

GAAP says must show 3 years.

Question 17

Net income

Answer 17

Revenues - expenses

Question 18

Retained Earnings

Answer 18

Cumulative net income (or net loss) of the company (from it’s inception) less all currrent and previous dividends combined.

Thus, each year, retained earnings increases by net income for that year and decreases by dividends for that year

Question 19

Dividend

Answer 19

return of capital

Question 20

Three sections of the Statement of Cash Flows

Answer 20

operating
investing
financing

Question 21

Matching principle

Answer 21

Matches revenues and expenses

Question 22

Cash is controlled through which financial statement?

Answer 22

Balance sheet

Question 23

MD&A

Answer 23

Management Discussion and Analysis

Question 24

Independent Auditor Report

Answer 24

Unqualified opinion

“In accordance with GAAP”

Question 25

Return on Assets equation

Answer 25

Net income / Average Total Assets

Question 26

Inventory Turnover Metric

Answer 26

Costs of Goods Sold / Average Inventory