Chapter 1 Flashcards

(25 cards)

1
Q

What are the four basic financial statements ?

A
  1. The Statement of Financial Position
  2. The Statement of Earnings
  3. The Statement
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2
Q

What is the purpose of the Statement of Financial Position ?

A

The purpose of the statement of financial position (balance sheet) is to report the financial position (amount of assets, liabilities, and shareholder’s equity) of an accounting entity at a particular point in time.

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3
Q

What is the structure of the heading of the statement of financial position ?

A
  1. Name of the accounting entity
  2. Title of the statement
  3. Specific date of the statement
  4. Unit of measure
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4
Q

What is an accounting entity ?

A

The organization for which financial data are to be collected and reported.

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5
Q

What is the basic accounting equation used in a statement of financial position ?

A

Assets = Liabilities + Shareholder’s Equity

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6
Q

In what order are assets listed on financial statements ?

A

Assets may be listed in either increasing or decreasing order of their convertibility to cash.

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7
Q

What is the purpose of a statement of earnings ?

A

Reports the net earnings achieved during the accounting period.

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8
Q

What is the structure (equation) use in a statement of earnings ?

A

Revenues - Expenses = Net earnings

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9
Q

What is the purpose of the statement of changes in equity ?

A

Reports how elements of comprehensive income, dividends, and changes to contributed capital affected the financial position of the company during the accounting period.

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10
Q

What is the equation used in the statement of changes in equity ?

A

Beginning retained earnings + Net earnings - Dividends = Ending retained earnings

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11
Q

What is the purpose of the statement of cash flows ?

A

Reports inflows (receipts) and outflows (payments) of cash during the accounting period in the operating, investing and financing categories

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12
Q

What is the the equation used in the statement of cash flows ?

A

+/- cash flows from operating activities, +/- cash flows from investing activities, +/- cash flows from financing activities, change in cash, +/- beginning cash balance = ending cash balance

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13
Q

What are the 3 relationships between the four financial statements ?

A
  1. Net earnings from the statement of earnings results in an increase in ending retained earnings on the statement of changes in equity
  2. Ending retained earnings in the statement of change in equity is one of the three components of the shareholder’s equity on the statement of financial position
  3. The change in cash on the statement of cash flows added to the cash balance at the beginning of the year equals the balance of cash at the end of the year, which appears on the statement of financial position
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14
Q

What is the International Financial Reporting Standards (IFRS)

A

Standars that encompass broad principles, specific rules, practices, and conventions of general application that are used by organizations to record transactions and report financial statement information to interested users.

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15
Q

What is the Accounting Standards Board (AcSB) ?

A

A private-sector body given the responsibility to set rules that become accounting standards for publicly accountable enterprises, private enterprises, government organizations and non-profit organizations.

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16
Q

Who is responsible of the development of the IFRS

A

The International Accounting Standards Board (IASB) which is an independent standard setting board.

17
Q

What rules do publicly accountable Canadian enterprises need to follow when preparing financial statements?

18
Q

Why are accounting standards important ?

A
  1. Provide guidance to enterprises
  2. Preventing manipulation of financial statements
  3. Enhance comparability
  4. Assess the quality of information
19
Q

What are the 3 steps to ensure accuracy in records ?

A
  1. Internal controls over assets and records
  2. Attest to the fairness of statements
  3. Oversee the integrity of safeguards
20
Q

What is the role of an independent auditor ?

A

Examine the financial records.

21
Q

What is the primary purpose of hiring a public accounting firm to examine the financial statements of the company?

A

To provide credibility that the financial information conforms with international financial reporting standards in all material respects.

22
Q

Which of the financial statement(s) addresses the question: “What is the financial picture of the organization on a given day?”

A

Statement of Financial Position.

23
Q

Parker Bank is deciding whether to make a loan to Davis Company. Why would the bank be interested in the amount of liabilities that Davis has on its statement of financial position?

A

If Davis already has many other obligations, it might not be able to repay the loan.

24
Q

What are 3 practices of public accounting ?

A
  1. Audit or Assurance servies
  2. Management consulting and advisory services
  3. Tax services
25
What are the 3 basic types of notes ?
1. The first type provides descriptions of the accounting rules applied in the company’s statements 2. The second presents additional detail about a line on the financial statements 3. The third type of note presents additional financial disclosures about items not listed on the statements themselves