AFA 100 Lecture Notes - Lecture 2: Financial Statement, Income Statement, Information System

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greeneel128

13 Jun 2016

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Information system that identifies and records economic events. Have questions, need answers to make informed decisions, analyze past to predict future. Investors, lenders, other creditors (external users make resource allocation decisions) Proprietorship (not legally separate but accounting records of owner and business. Pros : a. simple b. low start up costs (registration, capital required) c. full control (decisions, profits) Cons : a. life of business = life of owner b. business profit = self employed income c. taxed at personal tax rates d. unlimited liability (company is not legally separate from owner, owner can lose all personal assets) Partnership (not legally separate but accounting records of owner and business are. Pros : a. simple b. low start up costs c. partners share (decisions, profits) Cons : a. life of business not quite life of owners but b. business profit = self employed income c. taxed at personal tax rates d. unlimited liability (including partner"s debts)

Related Questions

QUESTION 1 The knowledge of financial accounting can assist people with decisions such as whether to extend credit to a business. True False 0.2 points Saved QUESTION 2 Employees of a company would not have a reason to use the information provided by financial accounting. True False 0.2 points Saved

QUESTION 3 Financial accounting should be used for assessing the financial health of large organizations only. True False 0.2 points Saved

QUESTION 4 Financial accounting can be helpful for a job candidate who is assessing the financial future of a potential employer. True False 0.2 points Saved QUESTION 5 Lenders might use the information produced by financial accounting when making loan decisions. True False 0.2 points Saved

QUESTION 6 Credit analysts prefer not to use information provided by financial accounting, as it is not accurate. True False 0.2 points Saved

QUESTION 7 Financial accounting is helpful to investment advisors. True False 0.2 points Saved

QUESTION 8 Financial accounting is more useful than managerial accounting. True False 0.2 points Saved

QUESTION 9 The decision to buy or rent equipment is an example of a decision aided by managerial accounting. True False 0.2 points Saved

QUESTION 10 Which of the following statements is true of financial accounting? A. It is used by external parties to make investment decisions. B. It is used to make lease or purchase decisions. C. Managerial accounting is another name for financial accounting, D. It is primarily used to make internal decisions of a business. E. The effectiveness of advertising can be judged using financial accounting. 0.2 points Saved QUESTION 11 The charge for using money over time, often associated with long-term loans, is known as: A. interest. B. principal. C. distribution charge. D. cash dividend. E. preferred dividend. 0.2 points Saved QUESTION 12 Which of the following is a common feature of financial and managerial accounting? A. Both have same objectives B. Both are prepared according to U.S. GAAP C. Both are reported at year end in the annual report D. Both are analyzed by external users while making investment decisions E. Both are used by the management in making decisions 0.2 points Saved

QUESTION 13 Dividends are required to be paid to stockholders on an annual basis. True False 0.2 points Saved

QUESTION 14 An individual who owns one or more shares of stock in a corporation is an owner of that corporation. True False 0.2 points Saved

QUESTION 15 Corporations do not exist as separate legal entities apart from their owners. True False 0.2 points Save Answer

QUESTION 16 It is very difficult to buy or sell ownership shares of a corporation in a stock exchange. True False 0.2 points Saved

QUESTION 17 Stock markets match up investors who wish to buy shares with those who wish to sell them. True False 0.2 points Saved

QUESTION 18 Legal process by which owners of an organization apply to a state government to have it identified as an entity legally separate from its owners is called: A. stocking. B. filling. C. attributing. D. registration. E. incorporation. 0.2 points Saved

QUESTION 19 An advantage of ownership in a sole proprietorship over ownership in a corporation is: A. tax benefits. B. having a board of directors. C. the ability to raise capital through issuance of stock. D. separation of owner and business as legal entities. E. limited liability for debts. 0.2 points Saved

QUESTION 20 Who hires the management of a corporation? A. Stockholders B. Board of directors C. Creditors D. Government E. SEC 0.2 points Saved QUESTION 21 Inventory refers to the: A. excess amount paid for an asset over its fair value. B. intangible assets of a business. C. merchandise bought or manufactured for the purpose of selling. D. amount of net income reinvested by company for future operations. E. revenue generated from investment. 0.2 points Saved QUESTION 22 Investors use financial information to predict whether a: A. company will recruit more employees. B. company's stock price will increase C. company has invested in buildings. D. company will pay salaries. E. company's bond price will increase. 0.2 points Saved

QUESTION 23 Financial accounting can be compared to a portrait. True False 0.2 points Saved

QUESTION 24 Financial statements provide the form and structure for the conveyance of financial information that will create a likeness of the reporting organization. True False 0.2 points Saved

QUESTION 25 The information reported in financial statements must be exact for an investor to make any decision. True False 0.2 points Saved

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QUESTION 5 Which of the following statements BEST definesfinancial statements? A. Financial statements are plans andforecasts for future time periods. B. Financial statements are theverbal statements made to business news organizations by chieffinancial officers. C. Financial statements are documents thatreport on a business in monetary terms, providing information tohelp people make informed business decisions. D. Financialstatements are the information systems that record and measurebusiness transactions.

QUESTION 6 Which of the following statements is true of a trialbalance? A. A trial balance has the same format as a balance sheet.B. A trial balance presents data in debit and credit format. C. Atrial balance shows total amounts of assets, liabilities, but notequity. D. A trial balance is prepared after the balance sheet.

QUESTION 7 There are relatively few types of revenue. Which ofthe following in NOT a type of revenue? A. Sales B. Service C.Interest D. Unearned Revenue

QUESTION 8 The financial statements should be prepared in whatorder? A. Income statement, statement of owner's equity, balancesheet, statement of cash flows B. Balance sheet, statement ofowner's equity, income statement, statement of cash flows C.Statement of owner's equity, balance sheet, income statement,statement of cash flows D. Balance sheet, income statement,statement of owner's equity, statement of cash flows

QUESTION 9 Which of the following journal entries would berecorded if a business makes a cash payment to a supplier of $600"on account" (the business had purchased supplies on account in theprevious month)? A. Accounts payable 600 Cash 600 B. Accountspayable 600 Supplies 600 C. Cash 600 Supplies 600 D. Cash 600Accounts payable 600

QUESTION 10 Which of the following statements about revenue isCORRECT? A. Revenues increase owner's equity, so a revenueaccount's normal balance is a credit balance. B. Revenues decreaseowner's equity, so a revenue account's normal balance is a debitbalance. C. Revenues increase owner's equity, so a revenueaccount's normal balance is a debit balance. D. Revenues decreaseowner's equity, so a revenue account's normal balance is a creditbalance.

QUESTION 11 From a legal perspective, a proprietorship is: A.not a distinct entity from its proprietor. B. authorized understate charter. C. an entity separate from its proprietor. D.subject to regulation by the SEC.

QUESTION 12 Sharon Samson starts a plumbing service namedReliable Waterworks. Selected transactions are described asfollows: A) Sharon deposits $7,000 into a new checking account forthe business, recording the capital contribution. B) Reliable pays$4,000 cash for equipment to be used for plumbing repairs. C)Reliable borrows $15,000 from a local bank and deposits the moneyin the checking account. D) Reliable pays $600 rent for the firstmonth. E) Reliable pays $400 cash for plumbing supplies to be usedon various jobs in the future. F) Reliable completes a plumbingrepair project for a local lawyer and receives $1,300 cash. G)Sharon takes a cash withdrawal of $2,500. After all of thetransactions, what is the amount of total assets? A. $25,700 B.$20,200 C. $24,200 D. $5,200

QUESTION 13 The Accounts Payable account is a(n) ________account and carries a ________ normal balance. A. liability; debitB. asset; debit C. liability; credit D. asset; credit

QUESTION 14 The following are the ending month's balances forToys Galore. Accounts payable $6,790 Revenue $8,680 Cash $4,500Expenses $1,050 Furniture $8,370 Accounts receivable $ 7,710Capital $930 Notes payable $5,230 What is the total amount ofcredits for the trial balance? A. $30,310 B. $16,400 C. $21,630 D.$20,580

QUESTION 15 The Sarbanes-Oxley Act ("SOX") made it a criminaloffense to: A. steal shareholders' money. B. default on loans fromcreditors. C. declare bankruptcy. D. falsify financialinformation.

QUESTION 16 Which of the following is the order of steps tojournalize an entry? A. Record the transaction, identify eachaccount affected, determine increase or decrease in each account.B. Identify each account affected, determine increase or decreasein each account, record the transaction. C. Identify each accountaffected, record the transaction, determine increase or decrease ineach account. D. Determine increase or decrease in each account,identify each account affected, record the transaction

QUESTION 17 Mitchell Florists had the following total assets,liabilities, and equity as of December 31. Assets $450,000Liabilities 135,000 Equity 315,000 What is Mitchell's debt ratio asof December 31? A. 30% B. 70% C. 100% D. 43%

QUESTION 18 Which of the following financial statements reportsrevenues? A. Statement of cash flows B. Income statement C.Statement of owner's equity D. Balance sheet

QUESTION 19 Following is a list of account balances (except forowner's capital) of Wilson Mowing Service as of December 31 of thefirst year of operation: Accounts receivable $2,500 Accountspayable $3,500 Salary expense $4,500 Repairs expense $800 Truck$8,500 Equipment $6,300 Notes payable $8,200 Cash $6,800 Suppliesexpense $1,600 Service revenue $31,900 Gasoline expense $3,800Salary payable $200 The proprietor, J.D. Wilson, contributed $3,000at the beginning of the year; during the year, the proprietor took$12,000 in drawings. At the end of the year, what is net income? A.$11,900 B. $21,200 C. $24,100 D. $12,200

QUESTION 20 Which of the following is an asset account? A.Salaries Expense B. Accounts Payable C. Service Revenue D. PrepaidExpense

QUESTION 21 A journal entry for a $75 payment for Rent expensewas posted as a debit to Salary expense and a credit to Cash. Thiserror will cause which of the following conditions on the trialbalance? A. The sum of the credits will equal the sum of thedebits. B. The sum of the debits will exceed the sum of the creditsby $75. C. The sum of the credits will exceed the sum of the debitsby $150. D. The sum of the debits will exceed the sum of thecredits by $150.

QUESTION 22 The business receives cash from a customer that isowed to the company "on account," based on services rendered to thecustomer previously. How does the collection of the cash affect theaccounting equation? A. Assets increase; owner's equity increases.B. Assets increase; liabilities increase. C. Assets decrease;owner's equity decreases. D. One asset increases; one assetdecreases

QUESTION 23 A business completes service to a client and sendsout a sales invoice. The amount will be collected from the customerat a later time. Which of the following would be TRUE at the timewhen the invoice is sent out? A. Total assets will decrease. B. Netincome will increase. C. Owner's equity will decrease. D. Totalliabilities will increase.

QUESTION 24 Which of the following accounts increases with adebit? A. Cash B. Interest Payable C. Accounts Payable D. Smith,Capital

QUESTION 25 The Accounts Receivable account of Nuptials Inc. isshown below. Accounts Receivable Dr Cr 26,000 3,500 5,000 Calculatethe ending balance of the account. A. $33,500 debit B. $31,000,debit C. $3,500, credit D. $27,500, debit

QUESTION 26 The following transactions for the month of Marchhave been journalized and posted to the proper accounts. Mar. 1Martinez invested $9,000 cash in his new design services business.Mar. 2 Paid the first month's rent of $800. Mar. 3 Purchasedequipment by paying $3,000 cash and executing a note payable for$5,000. Mar. 4 Purchased office supplies for $750 cash. Mar. 5Billed a client for $10,000 of design services completed. Mar. 6Received $8,000 on account for the services previously recorded.What is the balance in Cash? A. $13,250 B. $12,450 C. $15,450 D.$14,000

QUESTION 27 Which of the following sequences states the order inwhich a trial balance lists accounts? A. Equity â Assets âLiabilities B. Liabilities â Assets â Equity C. Assets â Equity âLiabilities D. Assets â Liabilities â Equity

QUESTION 28 Which of the following statements is FALSE? A. Atrial balance shows total amounts for assets, liabilities, andequity. B. A trial balance is created before the balance sheet isprepared. C. A trial balance presents data in debit and creditformat, but a balance sheet does not. D. A trial balance showstotal debits and total credits.

QUESTION 29 A promise received from a business's customers topay for goods and services that they received from the business iscalled a(n): A. revenue. B. account receivable. C. account payable.D. expense.

QUESTION 30 You can evaluate the economic resources, debt, andoverall financial position of a company in which of the followingfinancial statements? A. Income statement B. Balance sheet C.Statement of owner's equity D. Statement of cash flows

QUESTION 31 A book holding all of the accounts is called the: A.income statement. B. journal. C. ledger. D. balance sheet.

QUESTION 32 Which of the following groups of accounts BOTHnormally have a debit balance? A. Assets and Liabilities B.Liabilities and Owner's equity C. Revenues and Expenses D. Assetsand Expenses

QUESTION 33 A business buys $500 of supplies on account. Whichaccount is debited? A. Supplies B. Cash C. Service revenue D.Accounts payable

AFA 100 Lecture Notes - Lecture 2: Financial Statement, Income Statement, Information System

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