Chapter 1 & 2

Question 1

Three categories of business activities

Answer 1

Financing
Investing
Operating

Question 2

5 Components of a set of financial statements

Answer 2

Income
Changes in equity
Financial position 
Cash flows 
Notes

Question 3

Statement of income

Answer 3

Measures company performance by results of operating activities
Gains and losses are a result of the income statement

Question 4

Profit=

Answer 4

Income - expenses

Question 5

Gross profit =

Answer 5

Revenue from sales of goods - cost of goods

Question 6

Common statement of earnings items

Answer 6

Revenues, cost of goods sold, expenses, depreciation, amortization

Question 7

Share capital/retained earnings

Answer 7

Earnings that have not been distributed as dividends

Question 8

Retained earnings=

Answer 8

Opening retained earnings + net income - dividends declared

Question 9

Working capital =

Answer 9

Current assets - current liabilities

Question 10

Accounting equation

Answer 10

Assets = liabilities + shareholders equity

Question 11

3 characteristics of an asset

Answer 11

Controlled by the company
Future economic benefit
Event that gave company control has already happened

Question 12

3 characteristics of a liability

Answer 12

Current obligation on the company
Expected outflow of resources
Obligation resulted from event that has already occurred

Question 13

Starting point of the cash flow statement

Answer 13

Net earnings from income statement

Question 14

Equation of statement of income

Answer 14

Even use - expenses = net income

Question 15

International financial reporting standards must be followed by:

Answer 15

Public companies

Question 16

Accounting standards for private enterprises ASPE are followed by:

Answer 16

Private enterprises, but they may use IFRS if they wish

Question 17

Conceptual framework

Answer 17

An underlying set of objectives and concepts that guide accounting standard-setting bodies in justifying new standards and revisit old ones

Question 18

2 fundamental qualitative characteristics

Answer 18

Relevant

Representationally faithful

Question 19

4 enhancing qualitative characteristics

Answer 19

Comparability
Verifiability
Timeliness
Understandability

Question 20

To be relevant it must have 3 things

Answer 20

Predictive value
Confirmatory value
Materiality

Question 21

To be representationally faithful it must have 3 things

Answer 21

Completeness
Neutral
Free from error

Question 22

Accrual basis

Answer 22

Transactions recorded in the period they occur in, no matter when the cash flows
Revenues are recorded when earned and expenses are recorded when incurred

Question 23

Cash basis

Answer 23

Transactions recorded when cash is received or paid

Question 24

Straight line depreciation=

Answer 24

(Original cost - estimated residual value) / estimated useful life

Question 25

Operating activities should result in

Answer 25

Net inflow of cash

Question 26

Financing activities should result in

Answer 26

Net inflow of cash

Question 27

Investing activities should result in

Answer 27

Net outflow of cash