ACCT 504 - Accounting Quiz 1. Questions and Answers.

ACCT 504 - Accounting Quiz 1. Questions and Answers. Please describe the purpose of the Balance Sheet and the interrelationship between the balance sheet and the other major financial statements that we covered in this class. In your answer, please also address which financial statements should be created before the Balance Sheet, if any, and which financial statements need to be completed after the Balance Sheet, if any Solution 1. Purpose of the Balance Sheet Another nomenclature of balncesheet is statement of financial position. Different stakeholder's i.e cfreditors, debtors, investors, shareholders, bankers etc use balancesheet to determine company's financial position because it shows what company owes and owns. The balancesheet of company shows what are the comapny's asset the things company owns and the Laibilities of company and waht other things it owes. The difference between assets and liabilities shows shareholder's equity ie, the amount held by company's stockholders. 2.The interrelationship between the balance sheet and the other major financial statements The Mojar Financial Statements are 1. Balance sheet 2.Income Statement 3.Statement of stockholder's equity 4. Cashflow statement. Income statemetnt, balance sheet and cashflow statemetnsare interrelated. Income statemetn shows how asset and liabilities were used in stated accounting period. In income statemet all income and expense of accounting period are recorded and the difference between income and expenses is either recorded as profit or loss.Ultimately profit or loss is carried forward to balncesheet shareholders equity portion. Cashflow statement reflects how cash is used in business for operating ,Investing and Financing Activities and reveals cash inflows and outflows and what is cash on hand at year end which will be carried out at balncesheet. Financial statement' are based on accounting equation which is as follows: Assets = Laibilities + Shareholder's equity Revenues increase Shareholder's equity and expenses reduces Shareholder's equity. 3. Income statement should be created before the Balance Sheet and Cashflow statement need to be completed after the Balance Sheet, 2. Your friend, John, plans to open a parking garage business. John states that he does not have time to develop and implement a system of internal controls. (a) Explain to John the objectives of a system of internal control. (b) Explain to John at least 5 internal control procedures that he must establish to protect himself against fraud. You should state specific internal control procedures from the textbook and relate your answer to his parking garage business. solution (a) Objectives of Internal control 1) To Help the management in achieving organizational objectives 2) To maintain optimum utilization of the resources of an organization