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55 Cards in this Set
- Front
- Back
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What does the income statement do?
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periodically prepares the reports of financial consequences of a company's activities within a certain time period by accounting entity
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When is a profit shown?
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when there are more resources available at the end-of-period than the beginning-of-period
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When is a loss shown?
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when a company has consumed more resources at the end-of-period than were available at the beginning-of-period
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What does the income statement summarize?
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revenues and expenses for a specific period of time
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What is income from continuing operations?
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a measure of a business's part that is expected to be ongoing and used to predict future income
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How do you calculate the estimated value of a company?
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estimated annual future income / investment capitalization rate
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If the estimated value of a company is greater than the current stock value, the company should:
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BUY
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If the estimated value of a company is equal to the current stock value, the company should:
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HOLD
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If the estimated value of a company is less than the current stock value, the company should:
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SELL
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What are discontinued operations?
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operations that are either sold or closed down
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What is a segment?
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identifiable division of a company
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What are extraordinary items? Give examples.
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items that are both infrequent AND unusual; natural disasters or expropriations
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What is an exception of extraordinary items?
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material gain/loss from extinguishing debt
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What is the Cumulative Effect of a Change in Accounting Method?
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a choice made by the management of a company to go back and change the accounting method used
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How is the cumulative effect reported?
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in a special section of the income statement after extraordinary items
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How do you calculate earnings per share?
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net income / average number of shares of common outstanding stock
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When is EPS disclosed separately?
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continuing operations, discontinued operations, extraordinary items, and cumulative effect of a change in accounting method
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When is preferred stock given out?
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preferred dividends must be paid before distributions of earnings are made to the common stockholders (in the form of dividends)
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What is dilution?
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what could happen if non-outstanding EPS are converted into outstanding shares
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What types of items could result in diluted EPS?
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convertible items
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How do you increase tax expense? payable?
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expense - debit
payable - credit |
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How do you calculate income tax expense?
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income before income tax X income tax rate
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How do you calculate income tax payable?
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taxable income from the IRS X income tax rate
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What is the difference in income tax expense and income tax payable when we need a credit?
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deferred tax liability
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What is the difference in income tax expense and income tax payable when we need a debit?
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deferred tax asset
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What do auditor's reports typically contain?
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(1) identifies the audited financial statement, (2) describes how the audit was performed, (3) states the auditor's opinion and if the statement conformed to GAAP
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What does an unqualified (clean) auditor report state?
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the financial statements presented are free of material misstatements and are in accordance with GAAP
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What does a qualified auditor report state?
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the financial statements are fairly presented with a certain exception which is otherwise misstated
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What does an adverse auditor report state?
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the information contained is incorrect, unreliable, and inaccurate in order to assess the financial position and results of operations
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What does a disclaimer auditor report state?
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the auditor could NOT form, and refuses to present an opinion of the financial statement
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What is the basic concept of the cash flow statement?
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reports the entity's cash flow (cash receipts and cash payments) during the period
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What are the four main purposes of the statement of cash flow?
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(1) predict future cash flow, (2) evaluate management decisions, (3) determine the ability to pay dividends to stockholders and payments to creditors, (4) shows the relationship of net income to the business's cash flow
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What are cash equivalents?
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highly liquid, short-term investments that can be converted into cash very quickly
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What do operating activities do?
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create revenues, expenses, gains and losses
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What do investing activities do?
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increase and decrease long-term assets
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What do financing activities do?
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obtains cash from investors and creditors
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What does the indirect method report?
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net income to net cash provided by operating activities
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What does the direct method report?
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all cash receipts and cash payments from operating activities
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What activities do the indirect and direct methods NOT affect?
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investing or financing activities
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How does cash flow from operating activities?
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from net income to net cash with some adjustments along the way
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What does it mean when accounts receivable decreases?
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we collected cash
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If inventory, supplies or other current assets decrease, what does that mean we debited?
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an expense but did NOT credit cash
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What are the positive items of operating activities?
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net income, depreciation/amortization, loss on sale of long-term assets, decreases in current assets other than cash, increases in current liabilities
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What are the positive items of investing activities?
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sale of plant assets, sale of investments that are not cash equivalents, collections of loans receivable
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What are the positive items of financing activities?
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issuing stock, selling treasury stock, borrowing money
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What does an increase in a current asset other than cash indicate?
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a decrease in cash
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What does a decrease in a current liability indicate?
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a decrease in cash
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How do we record a collection of accounts receivable?
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debit cash
credit accounts receivable |
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How do we record a credit in sales?
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debit account receivable
credit sales |
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How do we record an accrued expense?
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debit tax expense
credit tax payable |
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How do we record a payment of a liability?
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debit tax payable
credit cash |
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What effect does a positive current assets decrease have on net income?
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no effect so we increase operating cash
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What effect does a negative current assets increase have on net income?
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net income has increased but cash hasn't so we decrease operating cash
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What effect does a positive current liability increase have on net income?
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net income has decreased, but cash hasn't so we increased operating cash
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What effect does a negative current liability decrease have on net income?
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no effect on net income so we decrease operating cash
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