Provide brief but complete (i.e., succinct) responses to the following: 1. How d

Question

Provide brief but complete (i.e., succinct) responses to the following: 1. How do the basic financial statements relate to (articulate with) each other? (You may draw a diagram)

2. What are the three handy hints that I recommend that you try when determining the answer to puzzling accounting questions?

3. What is the key advantage of using the double-entry system of accounting? AND how does the double entry system relate to the Accounting Equation? (diagram could be helpful here, too)

4. Why does GAAP want companies to use accrual basis accounting as opposed to cash-basis?

5. In the US, companies must provide notes to the financial statements. Why?

6. Why is comparative financial information provided in the annual report? Is recognition versus disclosure of an amount the same thing? Why or why not? How might these be perceived?

7. A common expression is “cash cannot lie.” Name three things could actually make cash flows from operations “lie.”

8. In general, what does a discount represent?

9. Is there really such a thing as a “noninterest bearing note”? Why or why not?

10. Why must publicly traded corporations produce 10Qs and 10Ks? (Because the SEC said so is NOT an acceptable answer)

11. Why do we need to provide the four major financial statements? Why not just one?

Explanation / Answer

1. How do the basic financial statements relate to (articulate with) each other? The basic financial statements are the income statement the balance sheet the cash flow statement the statement of retained earnings The income statement presents the revenues & expenses during the current accounting period,ie. the operating results for the period, from which net income/loss from operation is ascertained The balance sheet takes this information from the income statement , to arrive at additions to the opening balance of retained earnings ,under the stockholders' equity Cash flow statement takes informations from both the income statement & the balance sheet, to know non-cash items and changes to working capital, additional capital investments , changes to equity The statement of retained earnings /changes to equity,takes figures from stockholders' saetion of the balance sheetkwhich gives the beginning & closing balances and serves as an explanation to that section. 3.Key advantage of using the double-entry system of accounting? AND how does the double entry system relate to the Accounting Equation Double entry system of accounting is based on the premise that every transaction has two parts, one giving ledger & one receiving ledger account.So, after every transaction, the summation of account balances tally each other, ie all debits must equal credits. This tallying of both sides is the main advantage of double-entry syatem of accounting. Even though there may be compensating & also conceptual errors in compilation , this particular point serves as a most important advantage. As per the accounting equation, Assets + Expenses = Liabilites + Owner’s Equity + Revenues Here, it can be seen that all debit Accounts (Assets + Expenses) = all Credit Accounts (Liabilities + Revenue + Owner’s Equity) In the above equation ,debit accounts are on the left side of the equation that increase a debit account and reduce a credit account. Credit accounts are on the right side of the equation and increase a credit account and decrease a debit account. 4. Why does GAAP want companies to use accrual basis accounting as opposed to cash-basis So that it follows the matching concept of accounting, the corner-stone of accountancy,ie. Matching expenses with revenues--ie.accruing or deferring expenses & revenues in the correct period , in respect to which it is incurred--so that expenses incurred are matched with the revenues earned for the same period. 5.companies must provide notes to the financial statements. Why? To give more clarity to the financial data contained in the reports provided --and also due to the length of the supplementary information needed to be provided to the users of the financial report. Normally, it is customary that every published annual report has to be read along with the notes to financial statements. 6. Why is comparative financial information provided in the annual report? Comparative financial statements present financial data for two or more periods ,ie. they give similarly grouped data for the current period and for one or more preceding periods.This is easier to analyse trends & to spot out any glaring omission or commission----for all the varied users of the finalised document.Also , it indicates continuity of the business. 8. In general, what does a discount represent? Discount is the reduction in the final amount of bill to be paid --received on payment for purchases or given for slaes collections. They may be ready cash discounts or trade credits for early settlement.

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