Final Study Guide
There are 50 questions. Each question is 2 points.
The first half of the test involves providing definitions of financial terms and reading an income statement, balance sheet, statement of cash flows and notes to an actual Form 10-K of a company.
Know the definition and the difference between a qualified and unqualified accounting opinion
Qualified opinion: fall in between an unqualified and an adverse opinion. A qualified opinion means that for the most part, the company’s financial statements are in compliance with GAAP, but the auditors have reservations about something in the statements. Opinion issued by a certified public accountant that means the company’s financial statements are for the most part in compliance with GAAP but there is some circumstance about which the auditor has reservations; contrast with unqualified opin.
Unqualified opinion: opinion issued by a certified public accountant that means the company’s financial statements are, in all material respects in compliance with GAAP; the auditors has no reservation. Contrast with qualified opinion (pg 141)
Know the definition of marketable securities
Very liquid securities that can be converted into cash quickly at a reasonable price. are securities or debts that are to be sold or redeemed within a year. These are financial instruments that can be easily converted to cash such as government bonds, common stock or certificates of deposit.
Know the definition of trade accounts receivable amounts due to a corporation due to sales of goods and services on credit amounts due to a business following the sale of goods or services to another company. It is a subcategory of Accounts Receivable. Trade receivables are considered a current asset on a company's balance sheet, as they can be readily converted into cash.
Know what the allowance for doubtful accounts is and where to find information about this in the notes
Know the definition of prepaid expenses
A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received in the near future. While prepaid expenses are initially recorded as assets, their value is expensed over time as the benefit is received onto the income statement, because unlike conventional expenses, the business will receive something of value in the near future.
Prepaid expense is expense paid in advance but which has not yet been incurred. Expense must be recorded in the accounting period in which it is incurred. Therefore, prepaid expense must be not be shown as expense in the accounting period in which it is paid but instead it must be presented as such in the subsequent accounting periods in which the services in respect of the prepaid expense have been performed.
Know the definitions of raw materials, work in progress and finished goods inventory
Know what depreciation and amortization is and where to find it on the balance sheet, income statement and statement of cash flows
Know the definition of goodwill
Know the definition of accounts payable
Know the definition of deferred income tax for example, let's say that the amount of tax that a business should pay is $100,000, but due to tax laws, the amount actually payable for this fiscal year is $85,000. The additional $15,000…