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Finance Basics Essay

404 words - 2 pages

1. Define the process of accounting.

Accounting is the process that results in the preparation and reporting of financial statements for an entity at a point in time and/or its results cash flows for a period of time.

2. What are the three major divisions in the accounting field?

Internal Auditing: the practice of examination in the financial statements within a company by a third party with the objective of expressing an opinion about the fairness of the company’s financial position

Governmental and Non-profit auditing: the practice of examination in the financial statements of a state or charity-run organization

Income Tax Accounting: specialization in the individual taxation of ...view middle of the document...

Example: Google, Microsoft, AT&T, etc.

5. What is the purpose of an income statement? What are some examples of typical income statement accounts?

An income statement is the results of operations over a specified period or cumulative business results over a long duration of time.

6. What is the purpose of a statement of cash flows? What are some examples of typical statement of cash flow accounts?

Cash flow statements detail the reasons why the amount of cash (and cash equivalents) changed during the accounting period. Such as the cost of operating activities, investments and financing activities.

7. Based on the financial information below, prepare an income statement and a balance sheet for Joe’s-Fly-by-Night Oil company for the year ended December 31, 2011. Unless otherwise indicated, assume all information below is either for the year 2011 or as of December 31, 2011.

Accounts receivable………………………………….. $3,000

Accumulated depreciation…………………………… $12,000

Cost of goods sold…………………………………… $4,000

Income tax expense………………………………….. $1,000

Cash………………………………………………….. $5,000

Sales………………………………………………….. $10,000

Equipment (gross)……………………………………. $27,000

Selling, general, & administrative expenses…………. $3,000

Common stock (1,000 shares)………………………... $7,000

Accounts payable……………………………………. $17,000

Retained earnings……………………………………. $13,000

Interest expense……………………………………… $200

Inventory…………………………………………….. $17,000

Long-term debt………………………………………. $3,000

Dividends declared and paid………………………… $600

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