(FAC) Financial Accounting Actual Exam Latest Updated 2024 With Complete Solutions

(FAC) Financial Accounting Actual Exam Latest Updated 2024 With Complete Solutions

The four basic statements: - 1. Balance Sheet
2. Income Statement
3. Statement of Retained Earnings
4. Statement of Cash flows
Balance Sheet - Reports the amount of assets, liabilities and stockholders' equity of an
accounting entry at a point in time.
Income Statement - Reports the revenues less the expenses of the accounting period.
Statement of Retained Earnings - Reports the way that net income and the distribution of
dividends affected the financial position of the company during the accounting period.
Statement of Cash Flows - Reports inflows and outflows of cash during the accounting period
in the categories of operating, investing, and financing.
Basic Accounting Equation - Assets = Liabilities + Stockholders' Equity
Assets - Are the economic resources owned by the company. Each of these economic
resources is expected to provide future benefits to the firm.
Liabilities - Are the company's debts or obligations. Which will be paid with assets or services.
Stockholders' Equity (Owners' Equity) - Indicates the amount of financing provided by owners
of the business and earnings. Is the sum of the contribute capital + the retained earnings.
Accounting Period - Is the time period cover by the financial statements.
Elements of the Income Statement - Revenues, Expenses and Net Income.
Revenues - Earnings from the sale of goods or services to costumers. Revenues are reported
whether or not have yet been paid for.
Expenses - Represent the dollar amount of resources the entity used to earn revenue during
the period.
Net Income ("the bottom line") - Is the excess of total revenues over total expenses.
Net Loss - If total expenses exceed total revenues.
Retained Earning Equation - Ending Retained Earnings = (Beginning of Retained Earnings + Net
Income) - Dividends
Accounting - System that collects and processes (analyzes, measures, and records) financial
information about an organization and reports that information to decision makers.
Accounting entity - Is the organization for with financial data are to be collected.
The Cash Flow Statement Equation - +/- Cash flow from Operating Activities (CFO)
+/- Cash flow from Investing Activities (CFI)
+/- Cash flow from Financing Activities (CFF)
Change in Cash
Cash Flow from Operating Activities, and examples - CFO- Are cash flow that are directly
related to earning income. Example, collecting cash from costumers, pay salaries, pay bills,
pay to suppliers.
Cash Flow from Investing Activities, and examples - CFI- Are cash flow related to the
acquisition or sale of the company's productive assets. Example, the purchase of additional
equipment.
Cash Flow from Financing Activities, and examples - CFF- Are cash flow directly related to the
financing of the enterprise itself. Example, the payment of money to investors and creditors.
Notes - "Footnotes" provide supplemental information about the financial condition of a
company.
GAAP - Generally Accepted Accounting Principles, are the measurement rules used to develop
the information in financial statements.
SEC - Security and Exchange Commission, is the U.S government agency that determines the
financial statements that public companies must provide to stockholders, and the rules that
they must use in producing those statements.
FASB - Financial Accounting Standards Board, is the private sector body given the primary
responsibility to work out the detailed rules that become GAAP.
Audit - Is an examination of the financial reports to ensure that they represent claim and
comfort with GAAP.
Primary objective of external financial reporting - Is to provide useful economic information
to help external parties make financial decisions.
Qualitative Characteristics of Financial Information - Information should be Relevant and
Reliable.
Accounts - Is a standardized format that organizations use to accumulate the dollar effect of
transactions on each financial statement item. "Chart of account"
Transaction Analysis - Every transaction affects at least two accounts (dual effect), and the
accounting equation MUST remain in balance after each transaction.
The three steps in the transaction analysis process - 1. Identify the accounts affected and
classify them by type of account.
2. Determine the direction of the effect on each account.
3. Verify that the accounting equation remains in balance.
Direction of Transactions - Debit (dr) is on the LEFT side of an account.
Credit (cr) is on the RIGHT side of an account.
General Journal - Is a bookkeeping system, that records transactions in chronological order.
Journal Entry - Is an accounting method for expressing the effects of a transaction on
accounts in debits-equal-credits format.