Financial Statements Flashcards
(56 cards)
What are the five financial statements that a U.S. corporation must include in its annual financial statements?
- Income statement
- Statement of comprehensive income
- Balance sheet
- Statement of stockholders’ equity
- Statement of cash flows
What must accompany the financial statements to disclose important information?
Notes to the financial statements
What accounting principles must U.S. corporations comply with when issuing financial statements?
Generally accepted accounting principles (GAAP or US GAAP)
True or False: The amounts in financial statements are always relevant for future decisions.
False
Where do the amounts reported on financial statements originate from?
Business transactions recorded in the general ledger accounts
What are adjusting entries necessary for?
- Recording amounts that pertain to more than one accounting period
- Including expenses incurred late in an accounting period
- Complying with US GAAP requirements
What accounting method is required for most corporations, and what does it entail?
Accrual method of accounting; it reports sales and expenses when they occur rather than when cash is received or paid.
What is the benefit of using the accrual method of accounting?
- All revenues earned during the accounting period are included
- All expenses incurred during the accounting period are included
- All assets and liabilities as of the end of the accounting period are included
What are interim financial statements?
Financial statements issued between annual financial statements, typically prepared monthly or quarterly.
What is the difference between a calendar year and a fiscal year?
- Calendar year: January 1 to December 31
- Fiscal year: Any 12-month period that does not coincide with the calendar year
Who are the typical users of financial statements?
- Current stockholders
- Current lenders
- Financial analysts
- Potential investors
- Government agencies
- Labor unions
- Competitors
What does US GAAP include?
- Historical cost principle
- Revenue recognition
- Going concern
- Full disclosure
- Industry practices
What are the alternative names for the income statement?
- Statement of income
- Statement of earnings
- Statement of operations
- Profit and loss statement
- P&L
What is gross profit defined as?
Net sales minus cost of goods sold
How is net income calculated?
Total revenues minus total expenses, gains, and losses
What impact does net income have on retained earnings?
Positive net income increases retained earnings; negative net income decreases retained earnings.
What is Earnings Per Share (EPS)?
Net income divided by the weighted-average number of common shares outstanding during the accounting period.
Fill in the blank: The historical cost principle indicates that most amounts on the income statement reflect a corporation’s _______.
actual transactions
What is included in the statement of comprehensive income?
- Net income
- Other comprehensive income
What is the purpose of the notes to the financial statements?
To provide important information about amounts appearing or not appearing on the financial statements.
What is the purpose of the statement of comprehensive income?
To present a corporation’s net income and other comprehensive income
Other comprehensive income includes unrealized gains or losses on derivatives, pension liabilities, and foreign currency translation adjustments.
What are the components of comprehensive income?
- Net income
- Other comprehensive income
Other comprehensive income includes unrealized gains or losses on derivatives, pension liabilities, and foreign currency translation adjustments.
Where are adjustments for other comprehensive income reported?
On the statement of comprehensive income and included in accumulated other comprehensive income
This accumulation is part of stockholders’ equity.
What does the balance sheet report?
A corporation’s assets, liabilities, and stockholders’ equity as of a specific point in time
