Financial Accounting 100!

Which of the following is the primary objective of financial statements?

• Providing managers with detailed information tailored to the managers’ specific information needs

• Providing people outside the business organisation with information about the company’s financial position and operating results for decision making.

• Reporting to the tax authority the company’s taxable income

• Indicating to investors in a particular company the current market values of their investments

Which of the following is generally not considered one of the general purpose financial statements issued by a corporation?

• Income statement forecast for the coming year.

• Income statement

• Statement of financial position

• Statement of cash flows

The valuation of assets in the statement of financial position is based primarily upon:

• What it would cost to replace the assets

• Cost, because it is usually factual and verifiable

• Current fair market value as established by independent appraisers

• Cost, because in the event of liquidation, the assets would be sold at an amount equal to their original cost

The owner of Westhampton Fish Eatery purchased a new car for his daughter who is away at college at a cost of $4300 and reported this amount as Delivery Vehicle in the restaurant’s statement of financial position. The reporting of this item in this manner violated the:

• Cost principle

• Business entity concept

• Objectivity principle

• Going-concern assumption

The balance sheet item that represents the portion of equity resulting from profitable operation of the business is:

• Accounts receivable

• Cash

• Share capital

• Retained earnings

The essential point of double-entry system of accounting is that every transaction:

• Affects accounts on both sides of the statement of financial position.

• Is recorded in both the journal and the ledger.

• Increases one ledger account and decreases another.

• Affects two or more ledger accounts and is recorded by an equal dollar amount of debits and credits.

Posting is the process of:

• Transferring debit and credit entries from the journal into the appropriate ledger accounts.

• Determining that the dollar amount of debit entries recorded in the ledger is equal to the dollar amount of credit entries.

• Entering information into a computerized data base.

• Preparing journal entries to describe each business transaction.

Expenses should be recorded when:

• they are paid.

• they are used up.

• they are due.

• the company earns profit.

A journal entry to record revenue could include each of the following, except:

• A credit to a revenue account.

• A credit to the Share Capital account.

• A debit to Cash.

• A debit to Accounts Receivable.

The principle that states revenue should be recognized at the time goods are sold or services rendered is called:

• Adequate disclosure

• Conservatism

• Matching

• Recognition