review questions chapter 3
Group: 5Vi Number: 1550633 Name: Estefania Gutierrez Sanmiguel Team: 4
Review Questions Chapter 3
1 What roles do GAAP, the FASB, and the PCAOB play in the financial reporting activities of public companies?
2 Describe the purpose of each of the four major financial statements.
The purposes of each of the 4 major financial statements are:
Income Statement—the purpose of the income statement is to provide a financial summary of the firm’s operating results during a specified time period. It includes both the sales for the firm and the costs incurred in generating those sales. Other expenses, such as taxes, are also included on this statement.
Balance Sheet—the purpose of the balance sheet is to present a summary of the assets owned by the firm, the liabilities owed by the firm, and the net financial position of the owners as of a given point in time. The assets are often referred to as investments and the liabilities and owners equity as financing.
Statement of Retained Earnings—this statement reconciles the net income earned during the year, and any cash dividends paid, with the change in retained earnings during the year.
Statement of Cash Flows—this statement provides a summary of the cash inflows and the cash outflows experienced by the firm during the period of concern. The inflows and outflows are grouped into the cash flow areas of operations, investment, and financing.
3 Why are the notes to the financial statements important to professional securities analysts
The notes to the financial statements are important because they provide detailed information not directly available in the financial statements. The footnotes provide information on accounting policies, procedures, calculation, and transactions underlying entries in the financial statements.
4 How is the current rate (translation) method used to consolidate a firm’s an foreign and domestic financial statements?
Financial Accounting Standards Board Statement No. 52 describes the rules
Review Questions Chapter 3
1 What roles do GAAP, the FASB, and the PCAOB play in the financial reporting activities of public companies?
2 Describe the purpose of each of the four major financial statements.
The purposes of each of the 4 major financial statements are:
Income Statement—the purpose of the income statement is to provide a financial summary of the firm’s operating results during a specified time period. It includes both the sales for the firm and the costs incurred in generating those sales. Other expenses, such as taxes, are also included on this statement.
Balance Sheet—the purpose of the balance sheet is to present a summary of the assets owned by the firm, the liabilities owed by the firm, and the net financial position of the owners as of a given point in time. The assets are often referred to as investments and the liabilities and owners equity as financing.
Statement of Retained Earnings—this statement reconciles the net income earned during the year, and any cash dividends paid, with the change in retained earnings during the year.
Statement of Cash Flows—this statement provides a summary of the cash inflows and the cash outflows experienced by the firm during the period of concern. The inflows and outflows are grouped into the cash flow areas of operations, investment, and financing.
3 Why are the notes to the financial statements important to professional securities analysts
The notes to the financial statements are important because they provide detailed information not directly available in the financial statements. The footnotes provide information on accounting policies, procedures, calculation, and transactions underlying entries in the financial statements.
4 How is the current rate (translation) method used to consolidate a firm’s an foreign and domestic financial statements?
Financial Accounting Standards Board Statement No. 52 describes the rules