A304 EXAM 1 STUDY GUIDE
financial accounting - Answers :measurement of business activities of a company and
communication of those measurements to external parties for decision-making
purposes
corporation - Answers :an entity that is legally separate from its owner
sole proprietorship - Answers :a business owned by one person
partnership - Answers :business owned by two or more persons
stockholders equity - Answers :represents owners claims to resources
1. contributions by the. owners themselves
2. net resources generated by company operations
accounting equation - Answers :assets= liabilities + stockholders equity
revenues - Answers :amounts recognized when the company sells products or services
to customers
expenses - Answers :costs of providing products and services and other business
activities during the current period
dividends - Answers :cash payments to stockholders
*NOT EXPENSES
income statement - Answers :reports the company's revenues and expenses over an
interval of time
- help assess a company's ability to generate a profit from running its operations
statement of stockholders equity - Answers :summarizes the changes in stockholders
equity over an interval of time
common stock - Answers :represents amounts invested by stockholders when they
purchase shares of stock
external source
retained earnings - Answers :internal source of equity
balance sheet - Answers :presents the financial position of the company on a particular
date
statement of cash flows - Answers :measure activities involving cash receipts and cash
payments over an interval of time
, operating cash flows - Answers :cash payments and receipts that arise during normal
business operations
investing cash flows - Answers :cash transactions for the purchase and sale of
investments and long term assets
financing cash flows - Answers :cash transactions with lenders (borrowing and repaying
debt) and stockholders (issue stock and paying dividends)
statement of comprehensive income - Answers :reports changes in equity that arise
from non owner sources
usefulness of financial statements - Answers :1. assessing the prospect of future cash
flows
2. estimating firm value
3. identifying red flags
4. evaluating risk and uncertainties
5. assessing credit risk
6. evaluating management
GAAP - Answers :rules of financial accounting
SEC (securities and exchange commission) - Answers :requires companies that publicly
trade their stock prepare periodic financial statements for distribution to investors and
creditors
FASB (financial account standards board) - Answers :independent private sector body
with full time voting members and a very large support staff
primary responsibility is to set accounting standards to the private sector
-is useful to investors and creditors in making decisions
-helps to predict cash flows
-tells about economic resources, claims to resources, and changes in resources and
claims - Answers :financial accounting should provide information that:
auditors - Answers :trained individuals hired by a company as an independent party to
express a professional opinion of the conformity of that company's financial statements
with GAAP
unqualified - Answers :opinion of the financial statement is "clean"
unqualified with an explanatory or emphasis paragraph - Answers :in conformity but
other important information needs to be emphasized to users
financial accounting - Answers :measurement of business activities of a company and
communication of those measurements to external parties for decision-making
purposes
corporation - Answers :an entity that is legally separate from its owner
sole proprietorship - Answers :a business owned by one person
partnership - Answers :business owned by two or more persons
stockholders equity - Answers :represents owners claims to resources
1. contributions by the. owners themselves
2. net resources generated by company operations
accounting equation - Answers :assets= liabilities + stockholders equity
revenues - Answers :amounts recognized when the company sells products or services
to customers
expenses - Answers :costs of providing products and services and other business
activities during the current period
dividends - Answers :cash payments to stockholders
*NOT EXPENSES
income statement - Answers :reports the company's revenues and expenses over an
interval of time
- help assess a company's ability to generate a profit from running its operations
statement of stockholders equity - Answers :summarizes the changes in stockholders
equity over an interval of time
common stock - Answers :represents amounts invested by stockholders when they
purchase shares of stock
external source
retained earnings - Answers :internal source of equity
balance sheet - Answers :presents the financial position of the company on a particular
date
statement of cash flows - Answers :measure activities involving cash receipts and cash
payments over an interval of time
, operating cash flows - Answers :cash payments and receipts that arise during normal
business operations
investing cash flows - Answers :cash transactions for the purchase and sale of
investments and long term assets
financing cash flows - Answers :cash transactions with lenders (borrowing and repaying
debt) and stockholders (issue stock and paying dividends)
statement of comprehensive income - Answers :reports changes in equity that arise
from non owner sources
usefulness of financial statements - Answers :1. assessing the prospect of future cash
flows
2. estimating firm value
3. identifying red flags
4. evaluating risk and uncertainties
5. assessing credit risk
6. evaluating management
GAAP - Answers :rules of financial accounting
SEC (securities and exchange commission) - Answers :requires companies that publicly
trade their stock prepare periodic financial statements for distribution to investors and
creditors
FASB (financial account standards board) - Answers :independent private sector body
with full time voting members and a very large support staff
primary responsibility is to set accounting standards to the private sector
-is useful to investors and creditors in making decisions
-helps to predict cash flows
-tells about economic resources, claims to resources, and changes in resources and
claims - Answers :financial accounting should provide information that:
auditors - Answers :trained individuals hired by a company as an independent party to
express a professional opinion of the conformity of that company's financial statements
with GAAP
unqualified - Answers :opinion of the financial statement is "clean"
unqualified with an explanatory or emphasis paragraph - Answers :in conformity but
other important information needs to be emphasized to users
