Concept introduction:
Financial statements:
Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement,
Balance Sheet:
The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.
Income Statement:
Income Statement is the part of the financial statement which is prepared to calculate the net income earned by the organization. In the income statement, all expenses are subtracted from the revenues to calculate the net income. It is prepared for a particular period.
To choose:
The correct statement about FASB comprehensive income.
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Cornerstones of Financial Accounting
- Determine the effect of the following errors on a companys total revenue, total expenses, and net income. Indicate the effect by writing O for Overstated (too much), U for Understated (too little), or NA for Not Affected.arrow_forwardManagement does not usually like to tie comprehensive income closely with the income statement. Comment.arrow_forwardWhich of the following is not a limitation of the income statement? a. Comparability between companies may suffer because companies don't have enough leeway to choose between accounting methods. b. The use of different formats by companies within the same industry may hide differences in operating results. c. The use of functional classifications, instead of activity classifications, for operating expenses may not provide sufficient information for predicting future cash outflows. d. The matching of allocated historical costs against current revenues may not provide an accurate measure of a return on capital.arrow_forward
- Which of the following statements is false? Select one: O A. Management accounting statements need not comply with Accounting regulations O B. Financial accounting statements normally reflect more detail than would be found in management accounting reports O C. Management accounting reports emphasise future activities and future costs O D. Financial accounting data are directed primarily at external users rather than internal users.arrow_forward1. Of the following, choose the one that describes a situation where liabilities and expenses are manipulated to make a company appear less profitable? A. Liabilities are capitalized to increase revenues. B. Failure to record insurance expense for the period. C. Failure to record employee payroll earned but not paid as of period end. D. Failure to record warranty costs when the facts suggest that disclosure is more appropriate accounting treatment. E. None of the above.arrow_forward9. Technical analysts feel that financial accounting statements lack information, or report it in a way that makes comparisons difficult. Which of the following does not constitute a problem? a. Detailed information concerning sales and expenses by product line. b. Statements of change in financial position. c. Alternative ways of reporting expenses. d. Alternative ways of reporting assets and liabilities. e. The availability of psychological and nonquantitative variables.arrow_forward
- The concept of materiality: a Treats as material only those items that are greater than 2% or 3% of net income. b Justifies ignoring the matching principle in certain circumstances. c Affects only items reported in the income statement. d Results in financial statements that are less useful to decision makers because many details have been omitted.arrow_forwardThe distinction between operating and nonoperating income relates to: Primary activities of the company. Timing of income earned. Reliability of measurements. Cash collections from customers. None of the answers are correct.arrow_forwardWHICH STATEMENT IS FALSE?A. If the net income of prior period is overstated because of the change in accounting policy, the effect is deducted from the beginning retained earnings.B. Equity is also the net assets.C. Prior period errors are shown as adjustment of the ending balance of retained earnings. If the net income of the prior period is overstated, the amount of the error uis deducted from retained earnings.D. In the conversion of preference chares into ordinary shares, if the total par or stated value of the ordinary shares is more than the original issue of the preference shares, the difference is charged to retained earnings.arrow_forward
- The concept of earnings quality has several dimensions, but two characteristics often dominate. The accounting information should be a fair representation of performance for the reporting period and, The information should provide relevant information to forecast expected future earnings. Provide a specific example of poor accounting quality that would hinder to forecasting of expected future earnings.arrow_forward1. The company has an arregement under which revenue should be deferred, but it doesn't defer the revenue. Or, a company could defer to much revenue to shift income into future periods.arrow_forwardDescribe pro forma income and the importance of pro forma income in the evaluation of the income statement. Choose at least two items that are excluded from pro forma income. Suggest to management why including the items would be misleading to investors and creditors.arrow_forward
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