ACCT 2010 - Chapter 1 Test Questions and Correct Answers

State the 3 types of accounting Financial Accounting - information for external decision makers Managerial Accounting - information for internal decision makers Tax Accounting - information for the tax authorities Accounting matters why? If a company's revenue beats their projected, it will raise the stock price (even if the revenue is lower than other firms) - amazon and Facebook example Why stock prices drop? Stock prices drop due to market reactions (usually within 30 minutes). Investors use accounting information. Accounting A system that collects and processes (analyses, measures and records) financial information about an organisation and reports that information to decision makers. External decision makers Investors, creditors, suppliers, customers Internal decision makers Managers Four basic financial statements Balance sheet, Income statement, Statement of Retained Earnings and Statement of Cash Flows Interim Report A report prepared on a monthly, quarterly or semi-annual basis Accounting Entity The organisation for which accounting data is being collected Structure of financial statements 1. Name of entity 2. Title of Statement (balance sheet) 3. Date of the statement (Month, Date, Year) 4. Unit of measure (in thousands of dollars, in HKD) Balance Sheet Shows the financial position of an entity at any given point in time. It report the assets, liabilities and stockholder's equity of the entity. Basic accounting equation Assets = Liabilities + Stockholder's Equity