BMAL-590 BUSINESS FINANCE EXAM QUESTIONS
AND ANSWERS WITH COMPLETE SOLUTIONS
Generally Accepted Accounting Principles (GAAP)
a set of accounting standards that is used in the preparation of financial statements
developed by the Financial Accounting Standards Board (FASB)
Financial Accounting Standards Board (FASB)
The primary accounting standard-setting body in the United States.
examines controversial accounting topics and issues standards that, in terms of their impact on
accounting practices, almost have the force of law.
Securities and Exchange Commission (SEC)
The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting
bodies.
regulates publicly traded U.S. companies as well as the nation's stock and bond markets. It mandates
that companies generate financial statements following international accounting standards (IAS)
The SEC requires four key financial statements:
(1) the balance sheet
(2) the income statement
,(3) the statement of retained earnings
(4) the statement of cash flows
Public Company Accounting Oversight Board (PCAOB)
The group charged with determining auditing standards and reviewing the performance of auditing
firms. It effectively gives the SEC authority to oversee the accounting profession's activities
Established by the Sarbanes-Oxley Act of 2002
International Financial Reporting Standards (IFRS)
used in many countries as the regulatory basis for the preparation of financial statements. They are
designed to provide a common global language for financial reporting, particularly in the European
Union, so published financial information is comparable across international boundaries.
A firm's balance sheet
presents a "snapshot" view of the company's financial position at a specific moment in time.
By definition, a firm's assets must equal the combined value of its liabilities and stockholders' equity.
The basic balance sheet equation is Assets = Liabilities + Stockholders' Equity. Thus, creditors and equity
investors finance all of a firm's assets.
The balance sheet consist of three sections that list a firm's assets and liabilities as well as the claims of
the stockholders.
,ssets and liabilities appear in descending order of liquidity,
Liquidity
The length of time it takes to convert accounts into cash during the normal course of business. The most
liquid asset (cash) appears first, and the least liquid (fixed assets) comes last.
Current assets are those that are easy to sell and turn into cash, while fixed assets are physical assets like
buildings and equipment.
Assets
include everything that can be used to benefit the business or give the company the right to receive
benefits
Current Liabilities
those that must be paid within one year and include accounts payable, notes payable, and accrued
expenses
Long-term liabilities
due after more than a year and include deferred taxes and long-term debt.
stockholders' equity
The last entry on the balance sheet, stockholders' equity is the owners' residual share of the business,
including their original investment plus any money the firm has earned and retained since its inception.
Stockholders' equity includes preferred stock, common stock, paid-in-capital in excess of par, and
, retained earnings. However, the net worth of the firm includes only the common stock, paid-in-capital in
excess of par, and retained earning.
Balance Sheet Assets
-organized in order of liquidity:
1. Current Assets
-includes all cash and items expected to be converted into cash in next 12 months
A. Cash and Equivalents - money market
B. Accounts Receivable - amounts due from customers
C. Inventory - cost of raw materials
D. Prepaid Expenses - rents, taxes, prepaid advertising
2. Fixed Assets
A. Property Plant and Equipment
-factories
3. Other Assets
A. Intangible Assets
-brand names, trademarks, formulas, etc
Cash and cash equivalents
assets such as checking account balances at commercial banks that can be used directly as means of
payment.
Marketable securities
AND ANSWERS WITH COMPLETE SOLUTIONS
Generally Accepted Accounting Principles (GAAP)
a set of accounting standards that is used in the preparation of financial statements
developed by the Financial Accounting Standards Board (FASB)
Financial Accounting Standards Board (FASB)
The primary accounting standard-setting body in the United States.
examines controversial accounting topics and issues standards that, in terms of their impact on
accounting practices, almost have the force of law.
Securities and Exchange Commission (SEC)
The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting
bodies.
regulates publicly traded U.S. companies as well as the nation's stock and bond markets. It mandates
that companies generate financial statements following international accounting standards (IAS)
The SEC requires four key financial statements:
(1) the balance sheet
(2) the income statement
,(3) the statement of retained earnings
(4) the statement of cash flows
Public Company Accounting Oversight Board (PCAOB)
The group charged with determining auditing standards and reviewing the performance of auditing
firms. It effectively gives the SEC authority to oversee the accounting profession's activities
Established by the Sarbanes-Oxley Act of 2002
International Financial Reporting Standards (IFRS)
used in many countries as the regulatory basis for the preparation of financial statements. They are
designed to provide a common global language for financial reporting, particularly in the European
Union, so published financial information is comparable across international boundaries.
A firm's balance sheet
presents a "snapshot" view of the company's financial position at a specific moment in time.
By definition, a firm's assets must equal the combined value of its liabilities and stockholders' equity.
The basic balance sheet equation is Assets = Liabilities + Stockholders' Equity. Thus, creditors and equity
investors finance all of a firm's assets.
The balance sheet consist of three sections that list a firm's assets and liabilities as well as the claims of
the stockholders.
,ssets and liabilities appear in descending order of liquidity,
Liquidity
The length of time it takes to convert accounts into cash during the normal course of business. The most
liquid asset (cash) appears first, and the least liquid (fixed assets) comes last.
Current assets are those that are easy to sell and turn into cash, while fixed assets are physical assets like
buildings and equipment.
Assets
include everything that can be used to benefit the business or give the company the right to receive
benefits
Current Liabilities
those that must be paid within one year and include accounts payable, notes payable, and accrued
expenses
Long-term liabilities
due after more than a year and include deferred taxes and long-term debt.
stockholders' equity
The last entry on the balance sheet, stockholders' equity is the owners' residual share of the business,
including their original investment plus any money the firm has earned and retained since its inception.
Stockholders' equity includes preferred stock, common stock, paid-in-capital in excess of par, and
, retained earnings. However, the net worth of the firm includes only the common stock, paid-in-capital in
excess of par, and retained earning.
Balance Sheet Assets
-organized in order of liquidity:
1. Current Assets
-includes all cash and items expected to be converted into cash in next 12 months
A. Cash and Equivalents - money market
B. Accounts Receivable - amounts due from customers
C. Inventory - cost of raw materials
D. Prepaid Expenses - rents, taxes, prepaid advertising
2. Fixed Assets
A. Property Plant and Equipment
-factories
3. Other Assets
A. Intangible Assets
-brand names, trademarks, formulas, etc
Cash and cash equivalents
assets such as checking account balances at commercial banks that can be used directly as means of
payment.
Marketable securities
