MBA Accounting trial questions
and answers
Primary SEC filing requirements✔✔10K Annual, 10Q Quarterly
Benefits of disclosure✔✔Lower costs of funds and labor
Economic benefits form reliable disclosures
Costs of disclosure.✔✔Preparation and dissemination, competitive disadvantages,
litigation potential, and political costs
GAAP vs. IFRS✔✔Both are prepared using accrual accounting and utilize similar
conceptual frameworks.
Both require the same set of financial statements: a balance sheet, an income
statement, a statement of cash flows, a statement of stockholders' equity, and a set
of explanatory footnotes.
Income Statement✔✔An income statement reports on operating activities.
It lists amounts for sales (and revenues) less all expenses (and costs) over a period
of time.
Sales less expenses yield the "bottom-line" net income amount.
Statement of Equity✔✔The statement of equity reports on changes in the accounts
that makeup equity
Contributed capital
Earned capital (retained earnings and accumulated other comprehensive income)
Other (typically accumulated other comprehensive income and minority or
noncontrolling interest)
Statement of Cash Flows✔✔The statement of cash flows reports on cash flows for
operating, investing, and financing activities over a period of time.
Financial Statement Links✔✔The income statement and the balance sheet are
linked via retained earnings.
Retained earnings, contributed capital, and other equity balances appear both on the
statement of stockholders' equity and the balance sheet.
The statement of cash flows is linked to the income statement as net income is a
component of operating cash flow.
Oversight of Financial Accounting✔✔SEC oversees all publicly traded companies
Financial Accounting Standards Board (FASB)
Public Company Accounting Oversight Board (PCAOB)
Audit Report✔✔o Financial statements are management's responsibility. Auditor
responsibility is to express an opinion on those statements.
o Auditing involves a sampling of transactions, not investigation of each transaction.
, o Audit opinion provides reasonable assurance that the statements are free of
material misstatements, not a guarantee.
o Auditors review accounting policies used by management and the estimates used
in preparing the statements.
o Financial statements present fairly, in all material respects a company's financial
condition, in conformity with GAAP.
Sarbanes-Oxley Act✔✔o The SEC requires the CEO and CFO of a company to
personally sign a statement attesting to the accuracy and completeness of the
company's financial statements.
o The statements signed by both the CEO and CFO contain the following
commitments:
Both the CEO and CFO have personally reviewed the annual report.
There are no untrue statements of a material fact that would make the statements
misleading.
Financial statements fairly present in all material respects the financial condition of
the company.
All material facts are disclosed to the company's auditors and board of directors.
No changes to its system of internal controls are made unless properly
communicated.
Four Main Financial Statements✔✔• Balance Sheet
• Income Statement
• Statement of Stockholders' Equity
• Statement of Cash Flows
Balance Sheet✔✔• Mirrors the Accounting Equation
• Assets = Liabilities + Equity
• Uses of funds = Sources of funds
• Assets are listed in order of liquidity
• Liabilities are listed in order of maturity
• Equity consists of Contributed Capital and
• Retained Earnings
Assets✔✔• To be reported on a balance sheet, an asset must
o Be owned (or controlled) by the company
o Must possess expected future economic benefits
• Assets are listed in order of liquidity
Current assets comprise assets that can be converted to cash within a year
Long-term assets cannot be easily converted to cash within a year.
Examples of Current Assets✔✔• Cash—currency, bank deposits, and investments
with an original maturity of 90 days or less (called cash equivalents);
• Marketable securities—short-term investments that can be quickly sold to raise
cash;
• Accounts receivable, net—amounts due to the company from customers arising
from the sale of products and services on credit ("net" refers to uncollectible
accounts explained in Module 6);
• Inventory—goods purchased or produced for sale to customers;
and answers
Primary SEC filing requirements✔✔10K Annual, 10Q Quarterly
Benefits of disclosure✔✔Lower costs of funds and labor
Economic benefits form reliable disclosures
Costs of disclosure.✔✔Preparation and dissemination, competitive disadvantages,
litigation potential, and political costs
GAAP vs. IFRS✔✔Both are prepared using accrual accounting and utilize similar
conceptual frameworks.
Both require the same set of financial statements: a balance sheet, an income
statement, a statement of cash flows, a statement of stockholders' equity, and a set
of explanatory footnotes.
Income Statement✔✔An income statement reports on operating activities.
It lists amounts for sales (and revenues) less all expenses (and costs) over a period
of time.
Sales less expenses yield the "bottom-line" net income amount.
Statement of Equity✔✔The statement of equity reports on changes in the accounts
that makeup equity
Contributed capital
Earned capital (retained earnings and accumulated other comprehensive income)
Other (typically accumulated other comprehensive income and minority or
noncontrolling interest)
Statement of Cash Flows✔✔The statement of cash flows reports on cash flows for
operating, investing, and financing activities over a period of time.
Financial Statement Links✔✔The income statement and the balance sheet are
linked via retained earnings.
Retained earnings, contributed capital, and other equity balances appear both on the
statement of stockholders' equity and the balance sheet.
The statement of cash flows is linked to the income statement as net income is a
component of operating cash flow.
Oversight of Financial Accounting✔✔SEC oversees all publicly traded companies
Financial Accounting Standards Board (FASB)
Public Company Accounting Oversight Board (PCAOB)
Audit Report✔✔o Financial statements are management's responsibility. Auditor
responsibility is to express an opinion on those statements.
o Auditing involves a sampling of transactions, not investigation of each transaction.
, o Audit opinion provides reasonable assurance that the statements are free of
material misstatements, not a guarantee.
o Auditors review accounting policies used by management and the estimates used
in preparing the statements.
o Financial statements present fairly, in all material respects a company's financial
condition, in conformity with GAAP.
Sarbanes-Oxley Act✔✔o The SEC requires the CEO and CFO of a company to
personally sign a statement attesting to the accuracy and completeness of the
company's financial statements.
o The statements signed by both the CEO and CFO contain the following
commitments:
Both the CEO and CFO have personally reviewed the annual report.
There are no untrue statements of a material fact that would make the statements
misleading.
Financial statements fairly present in all material respects the financial condition of
the company.
All material facts are disclosed to the company's auditors and board of directors.
No changes to its system of internal controls are made unless properly
communicated.
Four Main Financial Statements✔✔• Balance Sheet
• Income Statement
• Statement of Stockholders' Equity
• Statement of Cash Flows
Balance Sheet✔✔• Mirrors the Accounting Equation
• Assets = Liabilities + Equity
• Uses of funds = Sources of funds
• Assets are listed in order of liquidity
• Liabilities are listed in order of maturity
• Equity consists of Contributed Capital and
• Retained Earnings
Assets✔✔• To be reported on a balance sheet, an asset must
o Be owned (or controlled) by the company
o Must possess expected future economic benefits
• Assets are listed in order of liquidity
Current assets comprise assets that can be converted to cash within a year
Long-term assets cannot be easily converted to cash within a year.
Examples of Current Assets✔✔• Cash—currency, bank deposits, and investments
with an original maturity of 90 days or less (called cash equivalents);
• Marketable securities—short-term investments that can be quickly sold to raise
cash;
• Accounts receivable, net—amounts due to the company from customers arising
from the sale of products and services on credit ("net" refers to uncollectible
accounts explained in Module 6);
• Inventory—goods purchased or produced for sale to customers;
