Assignment 2

Questions

1. The accounting equation (Assets = Liabilities + Equity) is a fundamental business concept. Explain what this equation reveals about a company’s sources and uses of funds and the claims on company resources.

The equation reveals what the company owes creditors for loans and what company owes the owner or how much the owner invests in the business

2. Companies prepare 4 primary financial statements. What are those financial statements and what information is typically conveyed in each?

Balance sheet, which lists the company’s investments and sources of financing using the accounting equation;

Income statement, which reports the results of operations;

Statement of stockholders’ equity, which details changes in owner financing;

Statement of cash flows, which details the sources and uses of cash.

3. Does a balance sheet report for a “period of time” or a “point in time”? How about an Income Statement? Or a Cash Flow Statement?

A balance sheet reports a company’s financial position at a point in time.

The income statement reports the results of a company’s operating activities over a period of time.

The income statement and the statement of cash flows report on performance over a period of time.

4. What are the 3 major business activities of a company that financial statements attempt to explain?

Investing, Financing, Operating activities

5. The 4 basic financial statements are called “general purpose” Financial Statements information is prepared and issued to provide all interested users with information about a company’s financial health and financial performance:

a. Who are the users of financial statement information most concerned about a company’s ability to generate profits and increase their investment in company operations to insure future profits and business development?

Investors can predict better the amounts, timing and future of cash flows

b. Who are the users most interested about a company’s ability to...