Understanding Accounting Information and Financial Statements

School: Roosevelt University - Course: MATH 110 - Subject: Accounting

1.Who uses accounting information and for what purpose? Accounting information is used both within and outside the firm to evaluate the success or failure of the firm. 2.List some of the decisions that business managers must make. Whats goods or services will be sold by the firm, what price the firm will charge for its goods, The geographic location of the firm 3.What are components of the income statement? The accounting report that shows the firm's revenues, expenses, and net income or net loss for a period. 4.What are the components of the statement of retained earnings? Balance, beginning of year/Net income for the year/Less cash dividends declared/Balance end of year 5.What are the components of the balance sheet? Current Assets, Long term assets: property and equipments, Current Liabilities, Long term liabilities, Stockholders equity 6.List the four essential questions that are answered by the four financial statements. How much did the firm earn or lose from operations during the period?-Income statement In what way did the firm's retained earnings change during the period?-Statement of retained earnings What is the firm's financial position at the end of the period?-Balance sheet What amount of cash was generated and spent during the period?-Statement of cash flows 7.Who conducts an external audit, and who benefits from the audit? External Audits must be conducted by certified public accountants, the owners/shareholders of a company benefit from independent review of the financial statements can provide transparency to the shareholders that the company is being run within their best interests 8.Contrast external auditing with internal auditing. Internal audit is a regular continuous activity that is performed by an internal audit department of an organization. The external audit is a yearly activity to investigate the organization's financial statement by a CPA. Internal audit is not compulsory, whereas External audit is compulsory. 9.What is the foreign currency translation, and why is it neccessary? It is necessary for financial records as foreign currency translation is the process of estimating the amount of money in one currency in the denomination of another currency. The process of currency translation makes it easier to read and analyze financial statements which would be impossible if they were to feature more than one currency.