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15 Cards in this Set
- Front
- Back
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A balance sheet provides information useful for assessing __________, ____________, and _______________.
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Future cash flows, liquidity, and long-term solvency.
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What is free cash flow?
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Cash the company is able to generate after all expenditures required to maintain or expand its asset base.
FCF = Operating cash flow - Capital expenditures Capital expenditures: Expenditures that are used by a company to acquire or upgrade physical assets such as equipment, property or industrial buildings. |
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What's the difference between FASB(GAAP) and IFRS standards of statement of cash flows?
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FASB reports normally and IFRS reports interest received and dividends received as investing activities and interest paid and dividends paid as financing activities.
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What does a credit line do to other liabilities?
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It borrows against the liabilities.
Ex: Say you intend to refinance $8 million and then you negotiated a credit line up to $7 million. This means you can only have $1 million of current liabilities left over, since the 7 million from the 8 million is now long-term used for credit line. |
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What two aspects do you need to assure refinancing to a long-term debt?
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The INTENTION and the ABILITY!
- Then you can classify as a long-term debt as long as it is before date of issuance of financial statements. |
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For the balance sheet approach, how do you usually estimate the bad debt expense?
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First, do the percentage uncollectible times the end balance of A/R to find the end balance for Allowance on Uncollectible accounts.
- Then take the difference between the desired balance of allowance and the existing balance of allowance to find the bad debt expense adjusting entry. |
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When using an aging schedule approach for estimating uncollectible accounts, how is bad debt expense measured and allowance for uncollectible accounts balance?
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Bad debt expense is measured either through the income statement approach:
% uncollectible times the sales revenue Or the Balance sheet approach: - End. A/R times % uncollectible - So Bad debt expense is measured indirectly. - Allowance for uncollectible accounts is measured directly from aging schedule. |
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What is the formula for allowance for sales return accounts?
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Beginning balance in allowance account
Add: Year-end estimate Less: Actual returns _______________________ Ending balance in allowance account |
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How do you find the net sales from a sales return problem?
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Let's say they tell us estimated sales return is 6% of all sales and sales is 40,000.
Then the net sales would be deducted since you return 2400 of sales revenue from the Sales return account which offsets Sales Revenue. So it would be 40,000 - 2400 = 37600. |
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For recording items on the balance sheet, what's the most important thing to remember?
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Balance sheet represents a point in time!
So the total expense or liabilities or whatever is only counted towards that year, not including last year. |
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What type of contingency should you accrue?
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Only accrue liability and disclosure note for LOSS contingencies.
- The likelihood has to be probable and the dollar amount has to be either known or reasonably estimable. |
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What's the difference between an implicit warranty and an extended warranty?
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Implicit warranty - combination in the purchase of the asset.
Ex: Incorporate in the purchase price of a car. DR----Warranty Expense CR---Warrant Liability Extended warranty - Where the buyer pays extra to extend the warranty. DR----Cash CR-------Unearned Revenue |
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When making a credit sale with sales tax, what account do you always keep the same as the sales price?
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Sales Revenue.
Because due to the sales tax, we record more A/R or cash received but actually recognize the same amount of revenue for the sale. |
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If it says during the year, x amount of receivables were determined to be uncollectible. What does this mean?
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It means that A/R is basically written off.
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When they say a percent of all sales will be returned how does that apply for sales returns and allowance?
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For sales returns, it means the end balance of sales returns.
For allowance on sales returns it increase the allowance amount during the year. |
