Assignment: Principles of Accounting

1. What are the four basic financial statements and what do they tell you about a company? What is the primary purpose of each of the four basic financial statements? In your opinion, which financial statement is the most important? Explain why. How the four basic financial statements are interrelated?

2. List some examples of internal or external users of financial statements. Pick one and describe how that person or department would use a specific financial statement. You can also share an example from your work experience.

3. The Balance Sheet is made up of Assets, Liabilities and Equity accounts. The Balance Sheet follows the Accounting Equation: Assets = Liabilities + Owners' Equity. Can you provide some examples of Asset, Liability and Equity accounts?
The Income Statement is made up of Revenues and Expenses. The formula for the Income Statement is: Revenues - Expenses = Net Income. Can you provide some examples of Revenue and Expense accounts?

4. Who are the internal users of accounting data? How does accounting provide relevant data to the internal users? Who are the external users of accounting data? Give examples.

5. What are the three basic forms of business organizations? What are the advantages to a business of being formed as a corporation? What are the disadvantages? What are the advantages to a business of being formed as a partnership or sole proprietorship? What are the disadvantages?

6. Financial reporting follows a set of accounting standards known as U.S. GAAP (Generally Accepted Accounting Principles.) Under GAAP, there are important Principles/Assumptions that are used: Economic Entity Assumption, Monetary Unit Assumption, Time Period Assumption, Cost Principle, Full Disclosure Principle, Going Concern Principle, Matching Principle, Revenue Recognition Principle, Materiality, Conservatism, Consistency, Comparability, and Reliable Verifiable and Objective. Describe one of the principles/assumptions and explain why it is important for all companies who follow U.S. GAAP.

7. Distinguish between long-term investments and property, plant, and equipment.

8. How do current liabilities differ from long-term liabilities?