Questions

1. Identify the four financial statements and describe the purpose of each.

2. Define the term stakeholders. Identify two stakeholder groups, and explain how each group might use the information contained in the financial statements.

3. Identify one similarity and one difference between revenues and gains. Why is this distinction important to stakeholders?

4. Identify one similarity and one difference between expenses and losses. Why is this distinction important to stakeholders?

5. Explain the concept of equity, and identify some activities that affect equity of a business.

6. Explain the difference between current and noncurrent assets and liabilities. Why is this distinction important to stakeholders?

7. Identify/discuss one similarity and one difference between tangible and intangible assets.

8. Name the three types of legal business structure. Describe one advantage and one disadvantage of each.

9. What is the “accounting equation”? List two examples of business transactions, and explain how the accounting equation would be impacted by these transactions.

10. Identify the order in which the four financial statements are prepared, and explain how the first three statements are interrelated.

11. Explain how the following items affect equity: revenue, expenses, investments by owners, and distributions to owners.

12. Explain the purpose of the statement of cash flows and why this statement is needed.

A free copy of this content can be found at: https://openstax.org/books/principles-financial-accounting