Financial Statement Preparation Flashcards

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

Answer: Income statement

The income statement (profit and loss statement) reports revenues, expenses, and net income or loss over an accounting period.

Under accrual accounting, when should revenue be recognized on a financial statement?

Answer: When goods or services are delivered

Under accrual accounting, revenue is recognized when goods or services are delivered to the customer, regardless of when cash is received.

Which section of the statement of cash flows includes payments for equipment purchases?

Answer: Investing activities

Purchases of long-term assets like equipment are classified under investing activities on the statement of cash flows.

What is the correct order for listing assets on a balance sheet under US GAAP?

Answer: Current assets first, then non-current assets

Under US GAAP, assets are listed in order of liquidity, with current assets (most liquid) appearing before non-current assets.

Which of the following is classified as an operating activity on the statement of cash flows using the indirect method?

Answer: Depreciation expense added back to net income

Under the indirect method, depreciation—a non-cash expense—is added back to net income to arrive at cash from operations.

Where does treasury stock appear on the balance sheet?

Answer: As a contra-equity account reducing stockholders' equity

Treasury stock represents shares repurchased by the company and is reported as a contra-equity account that reduces total stockholders' equity.

A company has total assets of $500,000 and total liabilities of $320,000. What is the stockholders' equity?

Answer: $180,000

Using the accounting equation (Assets = Liabilities + Equity), equity equals $500,000 − $320,000 = $180,000.