Exam 17: Understanding Accounting and Financial Information

The income statement computes net income by subtracting liabilities from assets.

The last major task Minnie completed before getting ready to prepare the firm's financial statements was the preparation of the

Assets are economic resources that are owned by a firm.

Sun Smarts Solar installs solar panels in large newly constructed buildings. The company employs several expert installers who work on a full-time basis. Although the installation team works every day, the company pays them at the end of the month, for the previous month's work. Employee salaries are recorded as ________ on Sun Smarts's balance sheet.

A ________ is a specialized accounting book, where transactions are categorized according to type. For example, all utility transactions are recorded in the same category.

Bookkeeping is part of the accounting cycle, but accounting goes far beyond the activities involved in bookkeeping.

Given that measuring a firm's financial health is important to its survival, which of the following strategies is good advice for a person just starting a business?

Financial ratios are used to analyze a firm's financial condition and financial performance.

The accounting profession is divided into two main fields: bookkeeping and auditing.

At the time the Bieg Plumbing Suppliers 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 Bieg is confident that they will make their payments on time. The amount these credit customers owe would show up as part of the

________ is the systematic write-off of the value of a tangible asset over its useful life.

FIFO is a method of inventory valuation that assumes the items most recently purchased are also the items that are sold first.

During a period of rising prices, the FIFO technique of inventory valuation will result in a lower net income figure than would the LIFO technique.

Portable Pet Care, Inc., a mobile veterinary care clinic, has more appointments than it ever expected to have when it first hit the road. Each week it orders more vaccines, antibiotics, and preventive care supplies from a major veterinary supplier, with the understanding that it will pay for these supplies in one month's time. Most of the company's clients are elderly and on fixed incomes, and often do not pay for services for two or more months. This is not a problem because as long as the company continues to increase its appointments, it will create profits and growth.

When valuing items in inventory for financial reporting purposes, generally accepted accounting principles (GAAP) requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first.

What is ratio analysis? Explain the four different types of ratios and how each is used.

Marshall Manufacturing has recorded its unpaid bill for supplies under a current liabilities account on the balance sheet. This payment will be due to the supplier in less than a year.

The statement of cash flows calculates cash flows from operations, investing activities, and financing activities.

Mike is the head of the accounting department at Micro Flash. After completing the trial balance, he will proceed with the preparation of the balance sheet, the income statement, and the statement of cash flows.

Discuss the role of an independent auditor. Provide information about the types of accounting activities they perform and the recent laws that have emerged to help guide them as they do their job.