MGA 201- Midterm Exam Questions and Correct Answers

MGA 201- Midterm Exam Questions and Correct Answers 1. Example of the impact of transactions on the balance sheet - ANSWER For Liabilities increases are credits. When stockholder's equity increases this is credit. When they both decrease it's a debit 2. first way to present accounting info - ANSWER -managerial accounting reports - include detailed financial plans and continually updated reports about the operating performance of the company -made available to employees (internal users) for making business decisions for production, marketing, HR, and finance (ex: determining discontinued products, buy/rent a building, employee wages, etc) 3. second way to present accounting info - ANSWER -financial accounting reports (financial statements) - provide info to external users (not businessemployed) -- they're not given access to internal records 4 groups of external users: creditors, investors, directors, government 4. notes vs accounts payable - ANSWER -notes payable - note = legal document (with interest) that borrowers are required to sign that describes details about the companys promise to repay the bank -accounts payable - amount owed to a supplier when a company buys goods from them on credit, purchases are "on account" (also salaries and wages payable and taxes) **must be paid within 30 days, no interest 5. stockholders equity (2 parts to it) - ANSWER represents the owner's claims on the business, claims arise from: -common stock (paid-in capital) - equity paid in by stockholders -retained earnings (earned capital) - equity earned by the company *owners get more $ back than they paid = return on their investment 6. net income equation an definition of revenues expenses - ANSWER -Net Income = Revenues - Expenses -revenues - sale of goods or services to customers measured at the amount the business charges the customer -expenses - the cost of doing business necessary to earn revenues, including wages to employees, advertising, insurance, utilities, and supplies used in the office *profit = rev exp *net loss = Exp rev 7. when does the stockholders equity account increase and what can be done with those funds - ANSWER -SE increases when a company generated net income -net income can accumulate for years or be paid out to stockholders for personal use -- dividends 8. dividends - ANSWER -distributions of a company's earnings to its stockholders as a return on their investment -company's profits accumulate in retained earnings until distributed to stockholders in dividends (not all companies distribute them) -dividends reported as a reduction in retained earnings *Dividends are not an expense incurred to generate earnings * -stockholders also make money through the appreciation of the company (can sell their stock for more than they paid) 9. 4 financial statements - ANSWER 1. income statement 2. statement of Retained Earnings 3. Balance sheet 4. Statement of Cash Flows *prepared in this order monthly/quarterly/annualy e statement (statement of operations) - ANSWER -heading - company name, "income statement," "for month ended..." -3 main sections - revenues, expenses, NI -unit of measure assumption - financial results of a company's worldwide biz activities should be measured and reported using a single monetary unit *Net income is a measure of how much better off your business is NOT how much cash you made - it's the financial performance of the biz during the acc. period ment of retained earnings - ANSWER -RE @ beginning of period + net income - dividends = RE @ end of period -heading is the same as income statement *reports the way that net income and distribution of dividends affected the financial position of the company during the period ce sheet - ANSWER -reports health/financial position of a biz at a specific point in time: what a biz owns (assets) what it owes to its creditors (liabilities) what is left over for stockholders equity (SE) -heading "at (date).." -cost principle - assets are reported on balance sheet based on their original cost to the company are the 4 groups of external users (definitions) - ANSWER 1. creditors - who money is owed (banks, suppliers, etc), just want to make sure they'll be paid back so use FS to check credit history before allowing them to buy on credit (risky so banks use periodic FS to see if they need to intervene) 2. investors - existing and potential stockholders -- look to FS to asses financial strength/value of business directors - short for "board of directors" -- oversee company's managers (elected by stockholders), use FS to ensure companys managers make decisions in best financial interest of stockholders 3. government (agencies like SEC) - functioning of stock market and IRS, state & local govts use FS to ensure taxes are correctly computed ry of 4 groups of external users - ANSWER -Creditors (contract) - can the company pay its liabilities? -investors (value) - what is the company's stock worth? -directors (govern) - is the company using its resources wisely? -government (regulate) - is it following the rules? -- financial statements -- managers (manage)