Deck 5: Introduction to the Key Financial Statements

Question 1

Discuss the differences between cash and accrual accounting. What is one significant advantage of accrual accounting over cash accounting?

Answer 1

Cash accounting records revenues when the cash is actually received, whereas accrual accounting records revenues when they are earned. Cash accounting records expenses when cash is actually disbursed or paid out, whereas accrual accounting records expenses when resources are used. Accrual accounting matches revenues and expenses in the same period, and is in compliance with GAAP.

Question 2

Not-for-profit health care organizations segregate their net assets between paid-in capital and retained earnings, with paid-in capital representing donor contributions for capital asset acquisition, and retained earnings representing accumulated operating profits and losses. Explain your answer.

Answer 2

False
For-profit health organizations separate equity between paid-in capital (investments from owners) and retained earnings (accumulated profits and losses).

Question 3

Can an organization use any month as its fiscal year end? Explain.

Answer 3

Yes. An organization would probably want to align its fiscal year end with a time in the year when it was less busy. But any month end is acceptable.

Question 4

Use the following terms to fill in the correct answers.
An operating statement for an organization lists the 1. __, 2. __ , and 3. __; while the balance sheet presents an organization's 4. __, 5. __, and 6. __.

A) Assets
B) Liabilities
C) Equity/Net Assets
D) Revenues
E) Expenses
F) Surplus or Deficit/Change in Net Assets