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Accountingcoach Coupons Store FAQ's

What is the difference between financial accounting and managerial accounting?

Financial accounting is concerned with providing information to external users like investors and creditors, while managerial accounting focuses on providing information to internal users like managers for decision-making.

What are the basic accounting principles?

The basic accounting principles include the accrual principle, the consistency principle, the going concern principle, the conservatism principle, and the materiality principle.

How do you calculate depreciation?

Depreciation can be calculated using methods like straight-line depreciation, double declining balance method, units of production method, or sum-of-the-years' digits method.

What is a balance sheet?

A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time, providing a snapshot of its financial position.

How do you interpret financial ratios?

Financial ratios are used to analyze a company's financial performance, liquidity, profitability, and solvency. Common ratios include the current ratio, debt-to-equity ratio, and return on equity.

What is the accounting equation?

The accounting equation is Assets = Liabilities + Equity, representing the fundamental relationship between a company's resources, debts, and ownership interests.

How do you calculate net income?

Net income is calculated by subtracting total expenses from total revenue on the income statement, reflecting the company's profitability for a specific period.

What is the difference between accounts payable and accounts receivable?

Accounts payable represent money owed by a company to its suppliers, while accounts receivable represent money owed to a company by its customers.

How do you prepare a cash flow statement?

A cash flow statement summarizes a company's cash inflows and outflows from operating, investing, and financing activities. It helps assess a company's liquidity and solvency.

What are the types of audit opinions?

Auditors can issue unqualified opinions (clean audit report), qualified opinions (with exceptions), adverse opinions (significant issues), or disclaimers of opinion (unable to express an opinion).

What is the difference between GAAP and IFRS?

Generally Accepted Accounting Principles (GAAP) are used primarily in the U.S., while International Financial Reporting Standards (IFRS) are used globally. Both frameworks have differences in accounting standards and principles.

How do you calculate the break-even point?

The break-even point is calculated by dividing fixed costs by the contribution margin ratio, representing the level of sales at which a company neither earns a profit nor incurs a loss.

What is a trial balance?

A trial balance is a list of all general ledger account balances to ensure that debits equal credits, helping identify errors before preparing financial statements.

How does the accounting cycle work?

The accounting cycle involves a series of steps like analyzing transactions, journalizing entries, posting to the ledger, preparing trial balances, adjusting entries, and ultimately closing the books at the end of the accounting period.

What is a financial statement analysis?

Financial statement analysis involves evaluating a company's financial statements to assess its financial performance, sustainability, and potential risks, providing insights to investors and creditors.

How are dividends accounted for in financial statements?

Dividends are typically recorded as a reduction in retained earnings on the balance sheet and as cash outflows from financing activities in the cash flow statement.

What is the importance of internal controls in accounting?

Internal controls establish procedures to safeguard assets, ensure accuracy of financial information, prevent fraud, and promote efficiency in operations, enhancing the reliability of financial reporting.

How do you calculate the cost of goods sold (COGS)?

The cost of goods sold is calculated by adding the beginning inventory to purchases and then subtracting the ending inventory, representing the direct costs of producing goods sold during a specific period.

What is the purpose of a statement of retained earnings?

The statement of retained earnings shows changes in the retained earnings account over a specific period, reflecting net income, dividends, and adjustments. It reconciles the beginning and ending balances of retained earnings.

What are intangible assets in accounting?

Intangible assets include patents, trademarks, copyrights, goodwill, and intellectual property that lack physical substance but have value to a company. They are reported on the balance sheet.

How do you calculate the debt-to-equity ratio?

The debt-to-equity ratio is calculated by dividing total liabilities by total equity, showing the proportion of debt financing relative to equity financing in a company's capital structure.

What is the difference between financial forecasting and budgeting?

Financial forecasting involves predicting future financial outcomes based on historical data and market trends, while budgeting involves setting financial targets and allocating resources to achieve specific goals.

How are adjustments made for bad debts in accounting?

Bad debts are adjusted by recording a provision for doubtful accounts, reducing accounts receivable and recognizing an expense to reflect the estimated uncollectible amounts from credit sales.

What is the role of the Securities and Exchange Commission (SEC) in accounting?

The SEC oversees financial reporting and disclosure requirements for public companies, enforcing regulations to protect investors and maintain the integrity of the capital markets.

How do you calculate the payback period for an investment?

The payback period is calculated by dividing the initial investment by the annual cash inflows generated by the investment, representing the number of years required to recover the initial investment.

What is the cash basis of accounting?

The cash basis of accounting records revenues and expenses when cash is received or paid, without considering accruals. It is simpler than the accrual basis but may not comply with GAAP.

How are stock options accounted for in financial statements?

Stock options granted to employees are usually accounted for using the fair value method, recognizing an expense over the vesting period based on the estimated value of the options.

What is the difference between an audit and a review in accounting?

An audit involves a comprehensive examination of financial statements by an independent auditor to provide reasonable assurance of their accuracy, while a review is a limited examination that provides less assurance.

How does the double-entry accounting system work?

The double-entry accounting system requires each transaction to have equal debits and credits, maintaining the accounting equation's balance and ensuring accurate recording of financial transactions.

What are the limitations of financial ratios in evaluating a company's performance?

Financial ratios have limitations based on data reliability, industry comparisons, changing accounting methods, and subjective interpretations, which may affect their effectiveness in assessing a company's performance.