Principles of F Accounting Ch2

What type of activity involves the production process, like turning flour into bread?

• Financing

• Investing

• Operating

• Financial

Which activity involves funding a company's operational activities?

• Financing

• Investing

• Operating

• Balancing

What is an example of an investing activity?

• Buying flour for bread production

• Lending money to another company

• Paying salaries

• Paying rent for the office

Which financial statement shows the financial position of a company at a specific point in time?

• Balance Sheet

• Income Statement

• Statement of Retained Earnings

• Statement of Cash Flows

The equation for a Balance Sheet is:

• Assets = Income + Expenses

• Assets = Liabilities + Equity

• Equity = Assets - Liabilities

• Assets = Revenue - Costs

If a company has Assets of 10 and Liabilities of 5, what is the Equity?

• 15

• 5

• 10

• 0

Who is considered an external user of financial statements?

• Employees

• Investors

• Management

• Accounting staff

Why do creditors, like banks, review financial statements?

• To decide how much tax a company pays

• To assess a company's financial health before giving loans

• To increase the company's equity

• To help in day-to-day operations

Which financial statement shows how much cash enters and exits a business?

• Income Statement

• Balance Sheet

• Statement of Retained Earnings

• Statement of Cash Flows

What is retained earnings?

• Assets minus liabilities

• Profits kept in the company rather than distributed as dividends

• The total revenue earned in one year

• The amount of cash flow available