MCQS on Financial Statements

The new accounting standard applies to all banks, savings associations, credit unions, and financial institution holding companies, both public and private, regardless of size, that file regulatory reports for which the reporting requirements conform to U.S. Because accounts payable represent short-term debts, it is characterized as a current liability on your balance sheet. Accounts payable entries result from a purchase on credit instead of cash. Income statements sometimes separate operating from non-operating expenses and revenue to keep one-off gains or losses from distorting the financial picture of the business. The “right” level of granularity depends on who’s looking at your income statement and for what purpose. To calculate total income, subtract operating expenses from gross profit.

The new accounting standard provides three different effective dates. The effective date applicable to an institution depends on the institution’s characteristics. Full __________ is achieved through the notes to the financial statements. This method displays the most permanent assets and liabilities first, followed by the current assets and liabilities.

Should the balance sheet and income statement match?

The number of goods that remain unsold at the end of the financial year is called closing stock. The determination of whether an institution is a PBE is the responsibility of each institution’s management. Institutions are encouraged to review the responses to questions 29 through 32 in making this determination. Finally, the AFS debt security impairment methodology retains today’s “intend to sell” and “more-likely-than-not required to sell” guidance that requires a write-down to fair value through earnings.

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Calculate Operating Expenses

If you have difficulty answering the following questions, learn more about this topic by reading our Income Statement (Explanation). For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided.

• Whether you’re an individual contributor, a leadership team member, or an entrepreneur wearing many hats, knowing how to write an income statement provides a deeper understanding of the financial state of your business.
• Go into your accounting software and print a trial balance for the period end.
• International public companies also frequently report financial statements in accordance with International Financial Reporting Standards (IFRS).
• The cash flow statement shows the cash flows generated or used in operating, investing and financing activities.

” The former is a question of business solvency; the latter is a question of business performance. Figure 2.8 shows what the statement of owner’s equity for Cheesy Chuck’s Classic Corn would look like. A purchasing manager at McDonald’s, for example, is responsible for finding suppliers, negotiating costs, arranging for delivery, and many other functions necessary to have the ingredients ready for the stores to prepare the food for their customers. Expecting that McDonald’s will have over $24 billion of sales during 2017, how many eggs do you think the purchasing manager at McDonald’s would need to purchase for the year? According to the McDonald’s website, the company uses over two billion eggs a year.12 Take a moment to list the details that would have to be coordinated in order to purchase and deliver over two billion eggs to the many McDonald’s restaurants around the world.

The Objective of General-Purpose Financial Reporting

When estimating allowance levels before CECL’s effective date, the implementation of the CECL methodology is a future event. It is therefore inappropriate to treat CECL as a basis for qualitatively adjusting allowances measured under the existing incurred loss methodology. At the time of adoption, the actual impact of CECL on an institution’s allowance levels will depend on many factors. These factors include current and future expected economic conditions, the level of an institution’s allowance balances, its portfolio mix, its underwriting practices, and its geographic locations and those of its borrowers. Because allowance levels depend on these institution-specific factors, the agencies cannot reasonably forecast the expected change in allowance levels across all institutions.

• With accounts payable automation, invoices are processed effectively and bills are paid on time, saving businesses significant time and money.
• An institution should not rely solely on past events to estimate expected credit losses.
• A negative net income means a company has a loss over that given account period, not a profit.
• Let’s prepare the income statement so we can inform how Cheesy Chuck’s performed for the month of June (remember, an income statement is for a period of time).
• It is an exciting time because the store opened in the current month, June.
• Accounting basics include how to value business transactions, how to record activity in a company’s books and how to report business results using financial statements.

Negative working capital is common in some industries, such as grocery retail and the restaurant business. For a grocery store, customers pay upfront, inventory moves relatively quickly, but suppliers often give 30 days (or more) credit. This means that the company receives cash from customers before it needs the cash to pay suppliers. Negative working capital is a sign of efficiency in businesses with low inventory and accounts receivable. In other industries, negative working capital may signal a company is facing financial trouble.

Almost all businessmen provide discounts to their debtors to encourage them to make prompt payments. Provision for Discount on Debtors is created in the same way as the provision for bad & doubtful debts because at the end of the year there will undoubtedly be some debtors who will be provided da iscount to receive prompt payments next year. Such an income that has not been earned as yet but has been received in advance is called Unearned Income.

Next, we account for the increase in value as a result of net income, which was determined in the income statement to be $5,800. Next, we determine if there were any activities that decreased the value of the business. More specifically, we are accounting for the value of distributions to the owners and net loss, if any. Assume the institution records provision expense entries only as of quarter-end. While related, expenses include all costs related to business operations, while accounts payable focus on obligations a business has to suppliers, vendors, debtors, and creditors.

What’s the Difference Between a Balance Sheet and Income Statement?

If the common stock of the IDI is wholly owned by a holding company, an implicit restriction on the transfer of the IDI’s common stock is presumed to exist. Therefore, the IDI would not meet the first condition in the criterion above, and, thus, the IDI is not a PBE. The fact that an IDI is subject to the FDICIA requirement49 does not in and of itself mean the IDI is a PBE.

An income statement is a financial statement that shows your revenue after expenses for a particular period, such as a month, quarter, or year. Preparing one is simple if you stay on top of your company’s bookkeeping. Assume that Chuck, the owner of Cheesy Chuck’s, wants to assess the liquidity of the business. Assume the Equipment listed on the balance sheet is a noncurrent asset. This is a reasonable assumption as this is the first month of operation and the equipment is expected to last several years. We also assume the Accounts Payable and Wages Payable will be paid within one year and are, therefore, classified as current liabilities.

Chart of Accounts- quick Questions & Answers

When Goods are sold as Sale or Return Basis then this should not be treated as an actual sale till the customer gives his approval. If such a sale has been already entered Income Statement Q&A in the sales book then an adjustment entry should be made to rectify the error made. Sometimes proprietors withdraw goods from the business for personal use.

• Under this standard, institutions will record credit losses on AFS debt securities through an allowance for credit losses rather than the current practice of write-downs of individual securities for other-than-temporary impairment.
• In most cases you want to compare a company with its past balance sheet information.
• Thank you for reading CFI’s guide to accounting interview questions.
• This includes local, state, and federal taxes, as well as any payroll taxes.
• Even though the company won’t pay the bill until August, accrual accounting calls for the company to record the transaction in July, debiting utility expense.

The working capital metric measures the liquidity of a company, i.e. its ability to pay off its current liabilities using its current assets. There is no difference between an income statement and a profit and loss report. Whether you’re an individual contributor, a leadership team member, or an entrepreneur wearing many hats, knowing how to write an income statement provides a deeper understanding of the financial state of your business.