Financial Statements & Reporting Flashcards

Which financial statement shows a company's revenues and expenses over a specific period?

Answer: Income Statement

The income statement, also called the profit and loss statement, reports revenues, expenses, and net income over a reporting period.

Under US GAAP, which inventory costing method assumes the most recently purchased items are sold first?

Answer: LIFO

LIFO (Last-In, First-Out) assumes the most recently purchased inventory is sold first, which is permitted under US GAAP but not IFRS.

What is the accounting equation that forms the foundation of the balance sheet?

Answer: Assets = Liabilities + Equity

The fundamental accounting equation states that Assets equal Liabilities plus Shareholders' Equity, ensuring the balance sheet always balances.

Which depreciation method results in higher depreciation expense in the early years of an asset's life?

Answer: Double declining balance

Double declining balance is an accelerated depreciation method that front-loads depreciation expense, resulting in higher charges in early years.

What does the term 'accrual basis accounting' mean?

Answer: Revenue is recorded when earned and expenses when incurred, regardless of cash flow

Accrual basis accounting records revenues when earned and expenses when incurred, regardless of when cash actually changes hands.

Which line item on the income statement represents revenue minus cost of goods sold?

Answer: Gross profit

Gross profit is calculated as revenue minus cost of goods sold (COGS), before deducting operating expenses such as SG&A.