Exam 1

Question 1

External Users

Answer 1

Investors, lenders, creditors, auditors

Question 2

Internal Users

Answer 2

Management

Question 3

What does the Security & Exchange Commission (SEC) do?

Answer 3

-Govern publicly traded companies
-Enforce accounting standards

Question 4

What does the Financial Accounting Standards Board do?

Answer 4

Write the accounting standards known as GAAP

Question 5

What is GAAP?

Answer 5

Generally Accepted Accounting Principals

Question 6

What does a 10-K Represent?

Answer 6

Annual financial reporting

Question 7

What does a 10-Q represent?

Answer 7

Quarterly financial reporting

Question 8

What does an 8-K represent?

Answer 8

special reports (mergers & acquisitions)

Question 9

Fiscal Year:

Answer 9

Chosen by a company
-Ex: Farming

Question 10

Calander Year:

Answer 10

Jan 1- Dec 31

Question 11

What are the 4 Basic Financial Statements?

Answer 11

1.Balance Sheet
2.Income Statement
3.Statement of Retained Earnings
4.Statement of Cash Flows

Question 12

Financial Statement Structure

Answer 12

A = L + SE
CC + REE
REb + NI - DIV
R - E

Question 13

Balance Sheet:

Answer 13

A = L + SE
Point in time report

Question 14

Income Statement (Profit & Loss Statement)

Answer 14

NI = R - E
Over a period of time

Question 15

Statement of Retained Earnings:

Answer 15

REE = REB + NI - DIV
Over a period of time

Question 16

Transaction Definition:

Answer 16

An event that has an economic impact on the business and must be recorded

Question 17

External transaction:

Answer 17

Involves an exchange between a company and an outside party

Question 18

Internal transaction:

Answer 18

occur within a company and have a direct financial impact

Question 19

Journal Entry:

Answer 19

Transactions are recorded in the accounting system through a JE
-Double Entry Accounting

Question 20

Chart of accounts

Answer 20

Details the accounts a company will use in their journal entries

Question 21

Normal Debit Balance Accounts:

Answer 21

Expenses
Assets

Question 22

Normal Credit Balance Accounts:

Answer 22

Revenue
Liability
Stockholder Equity

Question 23

T- Account;

Answer 23

a summary of transactions for each account

Question 24

General Ledger:

Answer 24

Summary of all T-Accounts

Question 25

Trial Balance:

Answer 25

a listing of all accounts in the general ledger with their balances -Used for creating financial statements -Not used for financial analysis

Question 26

Trial Balance order of accounts:

Answer 26

Assets -> Liabilities -> Stockholder Equity -> Revenue -> Expenses

Question 27

Adjusting Journal Entries adjust for 4 things:

Answer 27

1.Prepaid Items 2.Unearned Revenue 3. Receivables adjustment 4. Payables adjustment

Question 28

Revenue is recognized when...

Answer 28

earned

Question 29

Expenses are recorded when...

Answer 29

incurred (service is completed)

Question 30

Pre paid items are an...

Answer 30

Asset and record when cash is paid before the good/service is received

Question 31

Unearned revenue is a...

Answer 31

Liability and recorded when cash is received before the good/service is given

Question 32

Compound Interest Equation:

Answer 32

Interest(i) = Principal(P) x Rate(r) x Time(t)

Question 33

4 Major components of income statement is:

Answer 33

1.Revenue 2.Expense 3.Gains 4.Losses

Question 34

Gains:

Answer 34

increase to net income from peripheral transaction -not related to direct operations ex: selling equipment Book Value< Market Value

Question 35

Losses:

Answer 35

decrease to net income from peripheral transaction -not related to direct operations ex: selling equipment Book Value > Market Value

Question 36

Income Statement Structure:

Answer 36

1.Operating Activities 2.Gross Margine 3.Selling, general, administrative expense 4.Operating Income 5.Non operating activities 6.EBIT 7.Net Income

Question 37

Operating Activities

Answer 37

Sales Revenue and COGS

Question 38

Gross Margin

Answer 38

Sales Revenue - COGS

Question 39

Operating Income

Answer 39

Gross Margin - SGA Expenses

Question 40

Non operating activities

Answer 40

Gains and Losses

Question 41

EBIT: earnings before interest and taxes

Answer 41

Operating income - Non operating activities

Question 42

Net Income

Answer 42

EBIT - Interest/Tax Expense

Question 43

Percentage of Sales Metrics

Answer 43

Percentage of total sales for each item -allows internal and external users to analyze each line item and compare it to prior period or other companies

Question 44

Earnings per share definition:

Answer 44

metric used to evaluate both the operating performance and profitability of a company -EPS is required to be disclosed on the face of the income statement

Question 45

EPS Equation:

Answer 45

(Net Income - Preferred Dividends) / WANCSO

Question 46

Temporary Accounts:

Answer 46

Revenue and Expenses

Question 47

Permanant Accounts:

Answer 47

A, L, SE

Question 48

Liquidity

Answer 48

companies ability to convert assets to cash

Question 49

Solvency

Answer 49

companies ability to pay its debts on time

Question 50

Current Ratio:

Answer 50

Current Assets/Current Liabilities

Question 51

Working Capital

Answer 51

Current Assets - Current Liabilities

Question 52

Debt to Assets Ratio

Answer 52

Total Liabilities / Total Assets

Question 53

Debt to Equity

Answer 53

Total Liabilities / Total Equity