Lesson 9 Financial Statements Self-Test 1. True or False: 1) Financial statements are standard documents that tell us, in financial terms, how well a business is performing and where it stands. 2) Net income equals total revenues and gains less total expenses and losses. 3) Revenue and expense transactions directly affect retained earnings. 4) Activities that obtain from investors and creditors the cash needed to launch and sustain the business are called investing activities. 2. Multiple Choices: 1) Users of financial information may be categorized as internal or external. Which statement below is true regarding financial information users? A. External users evaluate the performance of a company's management using management accounting. B. Financial accounting provides information to managers and people outside of the firm, such as investors. C. Management accounting provides information to managers and people outside of the firm, such as investors. D. Financial accounting generates confidential information for internal decision makers such as executives and management. 2) For instance, accountants in the United States follow professional guidelines. The rules that govern accounting are called: A. AICPA B. GAAP C. SEC D. FASB 3) The economic resources of a business that are expected to produce a benefit in the future are called: A. assets B. liabilities C. owner’s equity D. increases in retained earnings 4) Retained earnings: A. represents exactly what the term implies: that portion of net income the company has retained B. represents cash that is available to the company for expansion purposes after all expenses have been paid C. is directly affected by asset and liability transactions D. is a part of comprehensive income 5) In accounting, financial statements can be prepared on a fiscal-year basis. A fiscal year will end: A. on December 31 each year B. on a date other than December 31 C. on January 31 each year D. answers b and c are correct 6) Organizations engage in various types of activities. The statement of cash flows reports on several of these activities. Which activity listed below is not reported in the statement of cash flows? A. operating activities B. investing activities C. financing activities D. liquidation activities 7) The financial statement(s) reporting net income include the: A. the income statement B. the statement of retained earnings C. the balance sheet D. Answers a and b are correct.