The Financial Statements quiz #1 Flashcards
The Financial Statements quiz #1
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What are the four main financial statements required by GAAP for external reporting?
The four main financial statements are the balance sheet, income statement, statement of cash flows, and statement of stockholders' equity. What does the balance sheet show?
The balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time. What is the fundamental accounting equation illustrated by the balance sheet?
The fundamental accounting equation is Assets = Liabilities + Equity. What information does the income statement provide?
The income statement details a company's revenues and expenses over a period, resulting in net income. How is net income calculated on the income statement?
Net income is calculated as revenues minus expenses. What does the statement of cash flows report?
The statement of cash flows tracks changes in a company's cash position over a period, showing cash generated and used in operating, investing, and financing activities. What is the purpose of the statement of stockholders' equity?
The statement of stockholders' equity shows changes in equity over time, including retained earnings and dividends. How are the financial statements interconnected?
Net income from the income statement flows into the statement of stockholders' equity, which then ties into the equity section of the balance sheet. What are the five main categories of account titles?
The five main categories are assets, liabilities, equity, revenue, and expenses. Which financial statement lists assets, liabilities, and equity?
The balance sheet lists assets, liabilities, and equity. What are examples of asset accounts?
Examples of asset accounts include cash, investments, receivables, prepaid expenses, inventory, land, equipment, and patents. What does the term 'receivable' indicate in an account title?
The term 'receivable' indicates an asset, representing money owed to the company. Why are prepaid expenses considered assets?
Prepaid expenses are considered assets because they represent payments made in advance for future benefits. What are examples of liability accounts?
Examples of liability accounts include accounts payable, notes payable, bonds payable, accrued expenses, and income taxes payable. What does the term 'payable' indicate in an account title?
'Payable' indicates a liability, representing money the company owes to others. What does 'accrued' mean in the context of liabilities?
'Accrued' refers to expenses that have been incurred but not yet paid, making them liabilities. What is the difference between current and long-term liabilities?
Current liabilities are due within one year, while long-term liabilities are due after more than one year. What are common equity accounts?
Common equity accounts include common stock, preferred stock, additional paid-in capital, retained earnings, and treasury stock. Where are equity accounts reported?
Equity accounts are reported on the balance sheet. What is the role of retained earnings in equity?
Retained earnings represent accumulated net income not distributed as dividends and are part of stockholders' equity. What are examples of revenue accounts?
Examples of revenue accounts include sales, sales revenue, service revenue, and investment revenue. How can you identify a revenue account by its title?
Revenue accounts often include the word 'revenue' or 'sales' in their titles. What are examples of expense accounts?
Examples of expense accounts include payroll expense, wage expense, and any account with 'expense' in its title. How can you identify an expense account by its title?
Expense accounts typically have the word 'expense' in their titles. Are dividends considered an expense?
No, dividends are not an expense; they are an equity account. On which financial statement are revenues and expenses reported?
Revenues and expenses are reported on the income statement. What is the purpose of the statement of retained earnings?
The statement of retained earnings shows changes in retained earnings over a period, including net income and dividends. How does the statement of stockholders' equity relate to the balance sheet?
The statement of stockholders' equity provides a detailed breakdown of the equity section reported on the balance sheet. What is the typical order for preparing financial statements?
The typical order is: income statement, statement of stockholders' equity, balance sheet, and then statement of cash flows. Why is the balance sheet considered a 'snapshot'?
The balance sheet is a 'snapshot' because it shows the company's financial position at a specific point in time. Why are the income statement and statement of cash flows considered 'over a period of time' statements?
They report financial performance and cash flows for a specific period, such as a month, quarter, or year. What is the main focus of the income statement?
The main focus is to show the company's profitability by reporting revenues and expenses. What does the statement of cash flows help users understand?
It helps users understand how cash is generated and used in operating, investing, and financing activities. Why is the statement of stockholders' equity important to investors?
It shows how the owners' equity has changed over time, including the impact of net income and dividends. What is the relationship between net income and retained earnings?
Net income increases retained earnings, while dividends decrease retained earnings. What is the significance of the 'current portion of long-term debt'?
It represents the amount of long-term debt that is due within the next year and is classified as a current liability. What is the difference between accounts payable and notes payable?
Accounts payable are short-term obligations to suppliers, while notes payable are formal written promises to pay amounts owed, often with interest. What is treasury stock?
Treasury stock is a company's own stock that it has repurchased and holds in its treasury. What is the purpose of classifying account titles into categories?
Classifying account titles helps in organizing financial information and preparing accurate financial statements. What is an example of an intangible asset?
A patent is an example of an intangible asset.
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