Financial Accounting Part 1

Financial Accounting Part 1 - FINANCIAL ACCOUNTING PART 1...

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FINANCIAL ACCOUNTING PART 1 Question 1 of 55 The communication of economic events that have taken place in an entity is called ____________. Accounting. Accounting is the system that takes raw data that is generated in the course of doing business and translates it into useful information and statements that outside sources use to evaluate the business. Question 2 of 55 Financial accounting is governed by basic ground rules that are referred to as __________ _________ Accounting Principles. Generally Accepted. Generally Accepted Accounting Principles are usually referred to as GAAP. These principles set the rules for accounting practices. They were established by the Financial Accounting Standards Board (FASB) to assist with the fair and objective comparison of business performance either within the same entity (from period to period) or with other entities. If an entity is following GAAP principles then it can be accurately compared to any other entity that follows GAAP. Although adherence to GAAP is not legally mandatory, the pressure to conform is huge, given our global marketplace. Question 3 of 55 The end product of financial accounting is the preparation of financial ___________. Statements. There are three main statements that are prepared: Balance Sheet – a report of the entity’s financial position at a given point in time Income Statement – a report of an entity’s financial activity for a given period of time. Cash-Flow Statement – a report of the movement of cash in and out of the entity for a given period of time. Question 4 of 55 Accounting principles are based on a set of __________ that underlie accounting practices. Concepts. There are 9 basic concepts that are used to form the foundation of accounting. These concepts are the assumptions underlying the preparation of financial statements, i.e. the basic assumptions of going concern, accruals, costing, etc. .. When reading a financial statement prepared according to GAAP, one can be assured these principles have been adhered to. Question 5 of 55 The ________ __________ concept stipulates that all business transactions must be expressed in money terms. Money measurement. This means that if something cannot be measured in money, it will not be included in accounting books. Accounting does not give a complete account of the 1
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happenings in an entity (management discord, strike pending, etc) therefore the reader of financial statements must find that information from other sources. Question 6 of 55 The _________ concept refers to the separation of business transactions from those of the business owner(s). Entity. This means that financial accounting and reporting relates only to the activities of a specific business entity and not to the activities of the owners of that entity. For example, the owner of a shoe store takes $100 cash out of the register for personal use. Even though the $100 belongs to the owner whether it is in the register or not, it is accounted for as a withdrawal of equity. The owner now has $100 more cash but he/she has less equity in the
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Financial Accounting Part 1 - FINANCIAL ACCOUNTING PART 1...

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