Financial Statements

Question 1

are the means by which the information accumulated and processed in financial accounting is periodically communicated to the users

Answer 1

Financial statements

Question 2

Financial statements are a structured financial representation of what?

Answer 2

the financial position and financial performance of an entity

Question 3

These are the statements intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.

Answer 3

General purpose financial statements

Question 4

Reports prepared at the request of management and bankers are not general purpose financial statements. True or False.

Answer 4

True. These reports are prepared specifically to meet the needs of management and bankers.

Question 5

What comprises a complete set of financial statements?

Answer 5

1. Statement of financial position
2. Income statement
3. Statement of comprehensive income
4. Statement of changes in equity
5. Statement of cash flows
6. Notes

Question 6

What comprise notes to financial statements?

Answer 6

A summary of significant accounting policies and other explanatory information.

Question 7

Reports and statements such as environmental reports and value added statements are not components of financial statements. True or False.

Answer 7

True. Many entities also present these two particularly in industries in which environmental factors are significant and when employee are regarded as an important user group. However, such statements and reports are not components of financial statements.

Question 8

What is the objective of general purpose financial statement?

Answer 8

to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

Question 9

Financial statements do not provide all the information that users may need to make economic decision. True or False.

Answer 9

True. Financial statements largely portray the financial effects of past events and do not necessarily provide nonfinancial information.

Question 10

The financial position comprises the …

Answer 10

assets, liabilities and equity of an entity at a particular moment in time.

Question 11

Financial position pertains to the …

Answer 11

liquidity, solvency, and the need of the entity for additional financing.

Question 12

The financial performance comprises the …

Answer 12

revenue, expenses and net income or loss of an entity for a period of time.

Question 13

Performance is the __________ earned by an entity through the efficient and effective use of its resources.

Answer 13

level of income

Question 14

are the cash receipts and cash payments arising from the operating, investing and financing activities of the entity.

Answer 14

Cash flows

Question 15

is the provision of financial information about any entity to external users that is useful to them in making economic decisions and for assessing the effectiveness of the entity’s management.

Answer 15

Financial reporting

Question 16

Financial reports include not only financial statements but also other information such as …

Answer 16

financial highlights, summary of important financial figures and analysis of financial statements.

Question 17

Financial reports also include …

Answer 17

nonfinancial information such as description of major products and a listing of corporate officers and directors.

Question 18

What is the objective of financial reporting?

Answer 18

to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

Question 19

What are the three specific objectives of financial reporting?

Answer 19

a) To provide information useful in making investing and credit decisions about providing resources to the entity.
b) To provide information useful in assessing the cash flow prospects of the entity.
c) To provide information about entity resources, claims and changes in resources and claims.

Question 20

General purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need. True or False.

Answer 20

True.

Question 21

General purpose financial reports are not designed to show the value of a reporting entity. True or False.

Answer 21

True.

Question 22

General purpose financial reports provide information to help the primary users estimate the value of the entity.

Answer 22

True.

Question 23

General purpose financial reports are intended to provide common information to users and cannot accommodate every specific request for information.

Answer 23

True.

Question 24

Financial reports are based on estimate and judgement rather that exact depiction.

Answer 24

True.

Question 25

It has the primary responsibility for the preparation and presentation of financial statements.

Answer 25

management of an entity

Question 26

What are the eight general features of financial statements?

Answer 26

1. Fair presentation and compliance with PFRS 2. Going concern 3. Accrual basis 4. Materiality and aggregation 5. Offsetting 6. Frequency of reporting 7. Comparative information 8. Consistency of presentation

Question 27

Fair presentation is achieved if the financial statements are ...

Answer 27

prepared in accordance with the Philippine Financial Reporting standards

Question 28

An entity whose financial statements comply with PFRS shall make an explicit and unreserved statement of such compliance in the notes. True or False.

Answer 28

True.

Question 29

faithful representation of the effects of transactions and other events in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses laid down in the Conceptual Framework.

Answer 29

Fair presentation

Question 30

means that the accounting entity is viewed as continuing in operation indefinitely in the absence of evidence to the contrary.

Answer 30

Going concern or continuity assumption

Question 31

the effects of transactions and other events are recognized when they occur and not as cash or cash equivalent is received or paid, and they are recorded and reported in the financial statements of the periods to which they relate.

Answer 31

Accrual basis

Question 32

assets are recognized when receivable rather than when received and liabilities are recognized when payable rather when actually paid.

Answer 32

Accrual basis

Question 33

income is recognized when earned regardless of when received and expense is recognized when incurred regardless of when paid.

Answer 33

Accrual accounting

Question 34

What is the essence of accrual accounting?

Answer 34

The essence of accrual accounting is the recognition of accounts receivable, accounts payable, prepaid expenses, accrued expenses, deferred income, and accrued income.

Question 35

An entity shall present separately each class of similar items items. True or False.

Answer 35

True.

Question 36

An entity shall present separately items of dissimilar nature or function unless they are immaterial.

Answer 36

True.

Question 37

When an item is material?

Answer 37

An item is material if knowledge of it would affect the decision of the primary users of the financial statements.

Question 38

What three important aspects the revised definition of materiality highlights?

Answer 38

1. Could reasonably be expected to influence 2. Obscuring information 3. Primary users

Question 39

Who are the primary users?

Answer 39

existing and potential investors, lenders and other creditors

Question 40

An entity shall clearly identify each financial statement and display all of the following:

Answer 40

1. name of the reporting entity 2. whether the financial statements cover the individual entity or a group of entities 3. end of the reporting period or the period covered by the financial statement or notes d. presentation of currency e. level of rounding used in the amounts in the financial statements