Understanding Key Accounting Concepts and Financial Statements
Key Accounting Concepts and Financial Statements
What are Circulating Assets?
Current Assets: These are items representing assets or securities resulting in the permanent conversion of the commercial or production cycle dedicated to the company. They represent availability, goods that may become available in the normal course of business with a maximum of one year from the balance sheet date. Examples include cash, bank accounts, accounts receivable, customer or debtor sales letters receivable, merchandise or inventory, and prepaid expenses.
Current Liabilities: These are obligations to third parties outside the company, whatever their origin, which are canceled in the normal course of business with a maximum term of one year.
Non-Operating Income and Expenses:
These correspond to revenue and expenses not directly related to the company’s main activity.
True or False Statements:
- False: The balance sheet tells us how wealth has changed in a specific period.
- False: The only asset available is the cash box.
- True: Income from sales and other revenue is to be booked in advance in the Statement of Income.
- False: Financial Statements allow proper decision-making for executives of the company, but the information they provide cannot be known by authorities outside the company, such as suppliers, customers, investors, etc.
- False: Financial Statements can only be made once the cycle of operations of the company which will have all the accounting information.
- True: It is said that the financial statements are like a picture of the company at any given time.
- True: One of the objectives of financial statements is to present the economic and financial situation of the company to a certain date, and a previous period.
- True: The statement shows the financial situation of the company expressed as a profit or loss, which affects the economic situation of the organization and where the assets will be increased or decreased, as appropriate.
- True: The notes to the financial statements are a welcome complement to the various headings and numbers that comprise it, in order that the information users have all the background that will allow economic decisions.
- False: Financial statements can only be made once the cycle of operations of the company, which will include all accounting information.
- True: It is said that the financial statements are like a picture of the company at any given time.
- True: The anticipated spending account is an asset account.
- False: Current liabilities include all obligations of the company.
- True: The current ratio corresponds to the number of times current assets exceed the liabilities.
- False: Financial Statements allow proper decision-making to corporate executives, but the information they provide cannot be known by authorities outside the company, such as suppliers, creditors, investors, etc.
- True: The profitability index, the result on equity (ROE) is the percentage profit or loss realized by each weight that owners have invested in the company, including retained earnings.
- True: The liability consists of: the assets, long term and heritage.
- True: Gross profit is determined by lowering of sales revenue, direct costs of goods sold.
- False: The Balance Sheet shows us as a varied heritage of the company, because it operations in a specific period.
- False: Realizable assets for the cash box.
- True: Sales revenue and other revenue are to be booked in advance in the output state.
- False: A greater number of units sold, the higher the selling and administrative expenses.
- True: Liquidity indices measure a company’s ability to convert their assets in cash or obtain cash to meet its liabilities.
- True: Liquidity indices measure a company’s solvency in the short term.
- True: The higher the liquidity index, the greater the solvency of the company in the short term.
- True: The non-operating income and expenses are not directly related to the holding company that is dedicated and add them or deduct, as appropriate, operating profit, income before determining the tax.
- False: Real estate is relatively liquid.