Exam 17: Understanding Accounting and Financial Information

The balance sheet is set up to reflect the Fundamental Accounting Equation. This equation shows:

The accounting cycle usually involves the work of both the bookkeeper and the accountant.

Referring to an accounting system, inputs refers to events and transactions that occur within the business, while outputs refers to the journal entries and ledger categorization that occurs after the events and transactions are recorded.

Assets are reported on the firm's balance sheet.

In the current economic climate, banks are remaining very conservative in their lending practices. Peak Performance Sporting Goods is seeking a loan for expansion. As a loan officer for the local bank, you calculate the acid-test ratio for Peak Performance Sporting Goods. Using the information below, you determine Peak Performance's acid-test ratio = .

Prattville Manufacturing has applied for a short-term loan with the First National Bank. The loan officers of the bank are likely to look carefully at Prattville's liquidity ratios before they decide to grant the loan.

The three important financial statements prepared by accountants are:

Derek has a bachelor's degree in accounting and additional training in tax law. He is responsible for preparing tax returns and developing tax strategies for his employer, and has done so for the past seven years. Derek is a certified government accountant.

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:

A journal is where the initial record of a day's transactions is entered.

A provides a summary of cash coming into and money going out of a firm from operations activities, financing activities, and investing activities.

The current ratio is found by dividing the firm's total assets by its total liabilities.

A debt to owners' equity ratio of 25% indicates that a firm has more debt than equity.

A firm's basic earnings per share measures how much profit was earned for each dollar invested by the firm's owners.

At the time the Jepson Plumbing Supply prepared its financial statements, it had several customers who bought goods over the past three months on its "90 days same as cash" credit plan. These customers had not yet paid their bills, but they have good credit ratings and Jepson is confident that they will make their payments on time. The amount these credit customers owe would show up as part of the:

A(n) provides accounting services to individuals or firms on a fee basis.

Financial accounting is used to provide information and analysis managers within the organization can use to assist them in decision making.

Rent, depreciation, and salaries are examples of:

When companies owe money to creditors, suppliers, and others, these outstanding amounts are recorded on the balance sheet as .

The Barkley Company is a fast growing start-up. The accountant calculated earnings per share = $.13. This information will provide him/her with insight into the firm's ability to pay dividends.