Exam 17: Understanding Accounting and Financial Information

The bottom line of an income statement shows the firm's

Dirty Dog's Drilling recently issued a corporate bond on which it expects to pay interest for the next twenty years. Dirty Dog's would record this as a ________ on its balance sheet.

The ________ account on the balance sheet shows profits that the firm has reinvested in the company.

The accounting cycle is a six-step procedure that results in the preparation and analysis of major financial statements.

Liquidity ratios are of particular importance to stockholders, but have little relevance for creditors.

Mini-Case Minnie A. Wright-Hoff works as an accountant for Double Entry Doors, Inc. Her company sells and installs oversized garage doors needed by large vehicles. Most of Minnie's work involves helping department heads and other decision makers by measuring and reporting costs for their departments, and by identifying areas where departments are exceeding their budgets. However, as one of only three accountants employed by Double Entry Doors, Minnie is something of a "jill-of-all-trades" in terms of her accounting assignments. For example, she recently spent several hours summarizing all of the financial data in account ledgers to see if the information was correct and balanced. Her efforts revealed no problems, so she is now ready to start working on the firm's financial statements. Minnie is interested in this part of the accounting cycle because she likes to be one of the first to know the "bottom line" her company will report. She knows that she and the other accountants who work on these statements can influence the results by the choices they make about the way they report certain items. -The fact that Minnie wants to determine the "bottom line" for Double Entry Doors means that she is particularly interested in preparing her firm's

The equipment a firm owns and the money it has in its bank account are considered assets.

An important difference between accounting and other business functions, such as marketing and management, is that

Henderson, Inc. owns land worth $800,000 and has $180,000 worth of cash in its bank account. In the asset section of the balance sheet, Henderson lists its land holdings prior to listing its cash since it is a higher value.

To effectively run a business, it is necessary to

The accounting book or computer program where each day's transactions are first recorded is called a

In an effort to maintain a competitive advantage, firms do not share accounting information with people outside of the firm.

Peak Performance Sporting Goods Company has reported net income after taxes = $3,750,000, with 18,250,000 shares outstanding. Basic Earning per Share for Peak Performance =

Banks are likely to request a firm's balance sheet when determining whether or not to loan money to the firm. However, banks would have little interest in the firm's income statement since it covers a short period of time.

The accounting book that provides all the information about a single account in one place is called the ledger.

Rents, salaries, utilities, and insurance are examples of operating expenses.

Mini-Case Minnie A. Wright-Hoff works as an accountant for Double Entry Doors, Inc. Her company sells and installs oversized garage doors needed by large vehicles. Most of Minnie's work involves helping department heads and other decision makers by measuring and reporting costs for their departments, and by identifying areas where departments are exceeding their budgets. However, as one of only three accountants employed by Double Entry Doors, Minnie is something of a "jill-of-all-trades" in terms of her accounting assignments. For example, she recently spent several hours summarizing all of the financial data in account ledgers to see if the information was correct and balanced. Her efforts revealed no problems, so she is now ready to start working on the firm's financial statements. Minnie is interested in this part of the accounting cycle because she likes to be one of the first to know the "bottom line" her company will report. She knows that she and the other accountants who work on these statements can influence the results by the choices they make about the way they report certain items. -The fact that Minnie spends most of her time measuring costs and checking to see if departments are staying within their budgets suggests that she is often involved in

One important source of financing for most small businesses is the owner's savings. If the owner contributes money to the business from his/her personal savings, it will be recorded in the owners' equity account on the balance sheet.

The job of reviewing and evaluating the information used to prepare a company's financial statements is referred to as auditing.

Josephine has discovered her small business needs a better way to maintain accounting records and analyze business opportunities. Currently, she uses a manual accounting system. These days, any accounting program should do an excellent job of meeting her firm's accounting needs.