Financial Statements

Question 1

accounting system of a company

Answer 1

set of procedures and controls used for identification of relevant transactions or events within the company

Question 2

What is the purpose of financial statements?

Answer 2

provide critical company information to internal and external users

Question 3

What is a financial statement?

Answer 3

Written reports that quantitatively describe the financial well-being of a company

Question 4

What are the basic financial statements?

Answer 4

• Balance sheet
• Income statement
• Statement of owner’s equity
• Statement of cash flows

Question 5

What are the principles of accounting?

Answer 5

• Going concern
• Objectivity
• Conservatism
• Consistency
• Matching
• Materiality

Question 6

Going concern

Answer 6

Any given company plans to remain in existence for the foreseeable future

Question 7

Objectivity

Answer 7

Accounting entries will be recorded on the basis of objective evidence

Question 8

Conservatism

Answer 8

Accounting estimates, evaluations, and opinions should neither overstate nor understate the business activities of the company

Question 9

Consistency

Answer 9

Similar measurement concepts and procedures for related items within financial statements are applied for entire accounting period

Question 10

Matching

Answer 10

Requires that all expenses directly associated with the production of revenues be reported within the same period on the income statement (depreciation for example)

Question 11

Materiality

Answer 11

Acknowledges the significance of various decisions and their ultimate effects on the financial statements given the magnitude of a company’s operations

Question 12

Accounting Equation

Answer 12

• also called balance equation
  • Assets = Liabilities + Owner’s Equity
  • Assets - Liabilities = Owner’s Equity

Question 13

What are the 5 basic types of accounts?

Answer 13

• Assets
• Liabilities
• Owner’s Equity
• Revenues
• Expenses

Question 14

Assets

Answer 14

things a business owns that can be used to generate income

Question 15

Liabilities

Answer 15

money owed to others or claims that various groups have against the company’s value

Question 16

Owner’s Equity

Answer 16

Owner’s own fund or worth in the company

Question 17

Revenues

Answer 17

Increases in assets and decreases in liabilities resulting from an entity’s profit-oriented activities

Question 18

Expenses

Answer 18

Decreases in assets and increases in liabilities resulting from an entity’s profit-oriented activities

Question 19

What is a balance sheet?

Answer 19

Itemized statement that lists total assets and total liabilities of a company with a specific date

Question 20

What questions does the balance sheet answer for a company?

Answer 20

tells you how much cash you have as of today

Question 21

What are the components of a balance sheet?

Answer 21

• Cash
• Accounts Receivables (A/R)
• Inventory
• Prepaid accounts
• Property, plant, equipment
• Intangible assets
• Accounts Payable
• Mortgage notes

Question 22

Balance sheet: Cash

Answer 22

• Money
• Currency
• “Benjamin’s”

Question 23

Balance sheet: Accounts Receivables (A/R)

Answer 23

The rights to receive money in the future.

Question 24

Balance sheet: Inventory

Answer 24

refers to items held for resale

Question 25

Balance sheet: Prepaid accounts

Answer 25

- accounts you pay at the beginning of the year, but haven’t used yet - ex. prepaid rent

Question 26

Balance sheet: Property, plant, equipment

Answer 26

Fixed assets such as your pharmacy building (assuming you own it)

Question 27

Balance sheet: Intangible assets

Answer 27

an asset that is not physical in nature (i.e. goodwill, patents, trademarks)

Question 28

Balance sheet: Accounts Payable

Answer 28

an entity’s obligation to pay a short term debt (payment for inventory, utilities, etc.)

Question 29

Balance sheet: Mortgage notes

Answer 29

balance of your mortgage loan if any is owed on property purchase

Question 30

depreciation

Answer 30

Property has a limited life span and it should be depreciated according to pre-established guidelines

Question 31

What is an income statement?

Answer 31

Records the company’s revenues and expenses for a specific period of time

Question 32

income statement equation

Answer 32

Revenues – Expenses = Net Income Dated “for the period ended” of a specific date

Question 33

What are the components of an income statement?

Answer 33

- Sales (or Revenues) - Cost of Goods Sold (COGS) - Operating expenses

Question 34

Income statement: Sales (or Revenues)

Answer 34

- Prescription sales - OTC - Compounding - MTM - Vaccinations

Question 35

Income statement: Cost of Goods Sold (COGS)

Answer 35

merchandise (inventory) for resale

Question 36

Income statement: Operating expenses

Answer 36

- Payroll - Advertising - Rent - Depreciation - Insurance - Utilities

Question 37

What is a statement of owner's equity?

Answer 37

- Reports how a company’s retained earnings have changed over some time period - specifically dated

Question 38

What is a statement of cash flows?

Answer 38

- Reports all major cash receipts (inflows) and cash payments (outflows) during a period - May be used as an analytical tool to assess short-term viability of a company - Reveals how a business generated and used cash during an accounting period