What is return on assets (ROA) used to measure?
How profitably a company uses its assets
ROA is calculated by dividing net income by average total assets.
On Pepsico’s 2021 income statement, what was the net income reported?
$7,618 million
This figure reflects the company’s profitability for the year.
What were Pepsico’s beginning total assets in 2021?
$92,918 million
This amount is found on the balance sheet.
What were Pepsico’s ending total assets in 2021?
$92,377 million
This amount is also found on the balance sheet.
The Economic Entity Assumption states that an organization stands apart as a separate economic unit. What are the four types of economic entities?
- Sole Proprietorship
- Partnership
- Corporation
- Limited-Liability Company (LLC)
Each type has distinct characteristics and implications for liability and taxation.
What is the cost principle in accounting?
Acquired assets and services should be recorded at their actual cost
This principle ensures that financial statements reflect the true cost of assets.
What does the going concern assumption imply?
The entity will remain in operation for the foreseeable future
This assumption is crucial for preparing financial statements.
What is the monetary unit assumption in accounting?
Items on financial statements must be measured in terms of a monetary unit
This ensures consistency in financial reporting.
What is an audit?
An examination of a company’s financial statements and records
Audits help ensure compliance with accounting standards.
What does the Sarbanes-Oxley Act (SOX) require companies to do?
Review internal controls
This act was established to protect investors from fraudulent financial reporting.
What is equity in the context of business?
Owners’ claims to the assets of the business
Also referred to as stockholders’ equity.
What are the two components of equity?
- Contributed capital
- Retained earnings
Contributed capital is the amount invested by owners, while retained earnings are profits not distributed to shareholders.
What is an asset?
An economic resource expected to benefit the business in the future
Examples include cash, merchandise inventory, furniture, and land.
What is the accounting equation?
Assets = Liabilities + Equity
This equation measures the resources of the business and the claims to those resources.
What are Generally Accepted Accounting Principles (GAAP)?
Accounting guidelines that govern financial reporting
GAAP ensures that financial information is relevant and faithfully represented.
Who oversees the creation and governance of accounting standards?
Financial Accounting Standards Board (FASB)
FASB is a private organization responsible for establishing accounting principles.
What is the role of the Securities and Exchange Commission (SEC)?
Oversees the U.S. financial markets
SEC ensures that investors receive accurate information about public companies.
What does accounting measure?
Business activities
Accounting processes this information into reports and communicates results to decision makers.
What does the income statement report?
Net income or net loss for a specific period
It is calculated as revenues minus expenses.
What does the statement of retained earnings inform users about?
How much of the earnings were kept and reinvested in the company
It shows the change in retained earnings over a period.
What does the balance sheet provide information about?
Assets, liabilities, and stockholders’ equity of the business
It reflects the financial position of the company at a specific date.
What does the statement of cash flows report?
Business’s cash receipts and cash payments for a period
It includes cash flows from operating, investing, and financing activities.
What is a transaction in accounting?
Any event that affects the financial position of the business
Transactions can be measured with faithful representation.
What is the first step in analyzing a transaction?
Identify the accounts and account type
This is crucial for determining the impact on the accounting equation.
