Question

Body) A A Aav PS AL 2 x, x' ADA AaBbCcDc AaBbCcDc Aal 1 Normal 1 No Spac... Head V Font Paragraph Exam 1 Review Chapter 1 . . Who establishes accounting standards in the US and Internationally? What are the names of these standards? What is the purpose of each financial statement? What is reflected on each financial statement? What are the different organizational forms and what are their attributes Who are the different users of the accounting system and what function does it fulfill for each user (Exhibit 1.2) . Chapter 2 . . . O What is the basic accounting equation and how is it changed? Define Assets, Liabilities, and Stockholders Equity and which accounts fall into each category and do the accounts have a normal debit or credit balance. Recordable transactions vs non-recordable transactions Be able to analyze, record, and summarize transactions that impact the balance sheet o Investments by stockholders Loans from the bank o Supplies purchase (both on account and with cash) Making payments on account • Purchasing equipment on account and/or with cash o Collecting payments from customers Deposits from customers The purpose for the Trial Balance, how it is organized, and how it's created Debt vs Equity financing: how do you identify it? Calculate the Current Ratio o O . .

Answer 1

CHAPTER 1

· Financial Accounting Standard Board (FASB) is establishes financial accounting and reporting standard for US. It is established in 1973, in Norwak. Major US accounting standards is Generally Accepted Accounting Principles (GAAP). The four basic constraints associated with GAAP include objectivity, materiality, consistency and prudence. International Accounting Standards (IAS) are older accounting standards issued by the International Accounting Standards Board (IASB), an independent international standard-setting body based in London. The IAS were replaced in 2001 by International Financial Reporting Standards (IFRS). The major international accounting standards are AS 3 Cash Flow Statements, AS 4 Contingencies and Events Occurring After the Balance Sheet Date, AS 6 Depreciation Accounting.

· Financial statements are compilation of financial data, collected and classified in a systematic manner according to the accounting principles, to assess the financial position of an enterprise as regards to its profitability, operational efficiency, long and short – term solvency and growth potential. Profit and loss account show the net result of the establishment, cash flow statement shows the annual cash inflow and outflow of business and balance sheet shows the financial position of enterprise.

· Mainly there are 4 types of organisational forms i.e. Sole proprietorship, partnership, corporation, and Limited Liability Company, five key attributes: (1) Customer focus, (2) resources and capabilities, (3) strategic vision, (4) value creation, and (5) quality focus. These attributes are the pillars that support a world-class R&D organization.

· Investors	· The owners still need information about performance of the business and its financial position to decide whether to continue or shut down
· Employees	· Growth of the employees is directly related to the growth of organisation
· Lenders	· They are interested to know whether their loan-principle and interest will be paid when due
· Suppliers and Creditors	· They are interested to know the ability of enterprise to pay their dues
· Customers	· They are concerned with the stability and profitability of the enterprise because their functioning is more or less dependent on the supply of goods.
· Government	· They regulate the functioning of business enterprise for public good, allocate scare resources.
· Public	· They interested because of the contribution to the local economy.

CHAPTER 2

· Assets = Liabilities + Shareholder’s Equity, various changes are Shareholder’s Equity = Assets – Liabilities, equity + long term liabilities= Fixed assets +Current Assets – Current Liabilities

· Assets: An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations. It has a debit balance e.g.: buildings, plant, equipment…

Liability: Liability is something that is owe. It is a credit balance. E.g.: bank loan, creditors,….

Stockholders Equities: It, also referred to as shareholders' equity, is the remaining amount of assets available to shareholders after all liabilities have been paid. ... stockholders equity might include common stock, paid-in capital, retained earnings and treasury stock.

· An accounting transaction is a business activity or event that causes a measurable change in the accounting equation. An exchange of cash for merchandise is a Recordable transaction. Merely placing an order for goods is not a recordable transaction because no exchange has taken place.

· Investment by stakeholder will affect the balance sheet. It increases the capital.

Loans from bank effect the balance sheet it increases the liability side and it effect the value of firm.

Purchase of supplies effect the balance sheet in area of asset in closing stock/inventories

Making payment on accounts (Accounts payable). The payment in accounts will reduce the balance of creditors and liability side.

Purchasing equipment is increases the asset side of balance sheet and it will affect the value of firm.

Collecting payments will affect only the payment received from debtors. Direct payment at the time of sales will not affect the balance sheet.

Deposits from customers will not affect the balance sheet.

Financial statements are normally prepared on the basis of agreed trial balance. The trail balance serves as a summary of what is contained in ledger;

· There are two types of financing available to a company when it needs to raise capital: equity financing and debt financing. Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company.

· Current ratio is an indicator of the firm’s commitment to meet its short-term liabilities. It is Current Asset/Current Liabilities. An ideal ratio is 2. However, 1.5 is acceptable.