Exam 15: Understanding Accounting and Financial Statements

MATCHING Complete the following using the terms listed. -Financial statements are prepared according to _____, whose principles encompass the conventions, rules, and procedures for determining acceptable accounting practices at a particular time.

On a balance sheet, total assets must always equal the sum of liabilities and owners' equity.

Describe the purpose of budgets in a business.

Expenses that have been incurred (such as wages) but have yet to be paid are reported on the balance sheet as _____.

MATCHING Complete the following using the terms listed. -A financial record of a company's revenues, expenses, and profits over a specific period of time is called the _____.

Define GAAP and explain its purpose.

The _____ was created by the Sarbanes-Oxley Act of 2002.

Scott Corp., an apparel company, has total assets worth $8,500. The owners' initial investment in Scott Corp. stood at $4,000, and profits that were not paid out to owners over time was at $2,000. Calculate the total liabilities.

A debt ratio of 20 percent means that the firm is relying more on borrowed money than owners' equity.

All organizations perform three basic business activities. List and describe these activities.

Melissa is the Executive Director of a local food bank and is assessing the financial situation of her not-for-profit organization. Melissa uses a(n) _____ to determine whether revenues from contributions and other sources will cover operating costs.

_____ activities provide the necessary funds to start a business and to expand it after it begins operations.

Assets are shown in ascending order of liquidity.

Which of the following was established in 1973 to promote worldwide consistency in financial reporting practices?

Explain the purpose of the Sarbanes-Oxley Act.

MATCHING Complete the following using the terms listed. -The _____ is primarily responsible for evaluating, setting, or modifying the generally accepted accounting principles.

Explain the accounting equation.

Companies such as Coca-Cola generate more than half their annual revenues from sales outside the United States, including Europe. If the dollar gets stronger relative to the euro, what will be the financial impact on the company?

Ratios assist managers by interpreting actual performance and making comparisons with what should have happened.

The balance sheet is based on the accounting equation.