D103 Intermediate Accounting I - Set 3 - Part 3

Correct Answer: Cash on hand

Earned capital, also known as retained earnings, consists of profits that are retained in the business rather than distributed as dividends to shareholders.

Correct Answer: They summarize cash flows

Financial ratios help analysts evaluate a company's performance by comparing various financial metrics over time or against industry standards.

Correct Answer: Going concern assumption

The going concern assumption presumes that a business will continue its operations for the foreseeable future without the intention of liquidation.

Correct Answer: To prepare financial statements

Audits are conducted to evaluate the reliability and accuracy of financial statements and ensure compliance with accounting standards.

Correct Answer: Assets are recorded at fair market value.

The cost principle dictates that assets should be recorded and reported at their original purchase cost, rather than current market value.

Correct Answer: To ensure that all profits are recorded

The conservatism principle suggests that potential losses should be recognized promptly while profits are only recognized when they are assured, promoting caution in financial reporting.

Correct Answer: Sales report

The income statement provides external stakeholders with key insights into a companys financial performance, summarizing revenues and expenses.

Correct Answer: To prepare financial statements

Internal controls are processes designed to safeguard assets, ensure the accuracy of financial records, and prevent fraud within an organization.

Correct Answer: Accrual basis accounting

Cash basis accounting recognizes expenses only when cash is disbursed, contrasting with accrual accounting, which records expenses when incurred.

Correct Answer: To summarize revenues and expenses

The retained earnings statement outlines how retained earnings have changed over a specific period, reflecting net income and dividends paid.