Cfa Study Session 7

Front 1

Elements of the Balance Sheet

Back 1

Assets, Liabilities, Owner's equity.

Front 2

Elements of Cash Flow Satement

Back 2

Operating cash flows, investing cash flows, financing cash flows

Front 3

What do financial statement notes disclose?

Back 3

Info on accounting metods and assumptions
- they are audited
- additional info on items like business acquisition and legal action and contingencies.

Front 4

What are supplementary schedules?

Back 4

- Operating income and sales by region
-reserves for an oil and gas company
-info on hedging activities and financial instruments

Front 5

What does managements discussion and analysis have?

Back 5

-assesment of financial performance
-required to discuss
-results from operations
-capital resources and liquidity
-general business overview
Can include:
-discussion of accounting policies that require judgements
-discussion of significant events
-extraordinary activities.

Front 6

What is the flow of information in an accounting system?

Back 6

Information flows through an accounting system in four steps:
1. Journal entries record every transaction, showing which accounts are changed by what amounts. A listing of all the journal entries in order by date is called the “general journal.”
2. The general ledger sorts the entries in the general journal by account.
3. At the end of the accounting period, an initial trial balance is prepared that shows the balances in each account. If any adjusting entries are needed, they will be recorded and reflected in an adjusted trial balance.
4. The account balances from the adjusted trial balance are presented in the financial statements.

Front 7

Form DEF-14A

Back 7

When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote, it also files the statement with the SEC as Form DEF-14A.

Front 8

Form 8-K:

Back 8

Companies must file this form to disclose material events including significant asset acquisitions and disposals, changes in management or corporate governance, or matters related to its accountants, financial statements, or the markets on which its securities trade.

Front 9

Form 144

Back 9

A company can issue securities to certain qualified buyers without registering the securities with the SEC, but must notify the SEC that it intends to do so.

Front 10

The objective of financial statements is:

Back 10

to provide economic decision makers with useful information about a firm’s financial performance and changes in financial position.

Front 11

What is the financial satement analysis framewrok?

Back 11

1)State the objective and context
2)Gather Data
3) Process the Data
4)Analyze and interpret the data
5)Report the conclusions or recommendations
6)Update the analysis

Front 12

International Accounting Standard (IAS) No. 1 defines which financial statements are required and how they must be presented. The required financial statements are:

Back 12

Balance sheet.
• Income statement.
• Cash flow statement.
• Statement of changes in owners’ equity.
• Explanatory notes, including a summary of accounting policies.
Disclosures of material events that affect the company are required by the Securities and Exchange Commission (Form 8-K) for firms that are publicly traded in the United States.

Front 13

Wichita Corporation reported the following balances as of December 31, 2007:

Cash
$?

Accounts payable
16,000

Accounts receivable
58,000

Additional paid-in capital
42,000

Common stock
19,600

Inventory
12,000

Plant and equipment
26,800

Notes payable 20,000
Retained earnings 32,000
Calculate Wichita’s cash and total assets as of December 31, 2007 based only on these entries.

Back 13

he correct answer was A) $32,800 $129,600


Liabilities plus equity are equal to $129,600 ($16,000 accounts payable + $20,000 notes payable + $19,600 common stock + $42,000 additional paid-in capital + $32,000 retained earnings). Since assets must equal liabilities plus equity, cash must equal $32,800 ($129,600 total assets – $58,000 accounts receivable – $12,000 inventory – $26,800 plant and equipment).

Front 14

Accruals fall into four categories- what are they?

Back 14

1. Unearned revenue.
2. Accrued revenue.
3. Prepaid expenses.
4. Accrued expenses. Wages payable are a common example of an accrued expense

Front 15

Differences between IASB and FASB in financial statement elements include:

Back 15

(1) The IASB framework lists income and expenses as the elements related to performance, while the FASB framework uses revenues, expenses, gains, losses, and comprehensive income. (2) FASB defines an asset as a future economic benefit, where IASB defines it as a resource from which a future economic benefit is expected. (3) The word “probable” is used by the FASB to define assets and liabilities, and by the IASB to define the criteria for recognition. (4) The FASB framework does not allow the values of most assets to be adjusted upward.

Front 16

general ledger

Back 16

sorts the entries in the general journal by account.

Front 17

initial trial balance

Back 17

3. At the end of the accounting period, an initial trial balance is prepared that shows the balances in each account. If any adjusting entries are needed, they will be recorded and reflected in an adjusted trial balance.
4. The account balances from the adjusted trial balance are presented in the financial statements.

Front 18

Treasury Stock method.

Back 18

The treasury stock method assumes the hypothetical funds received by the company from the exercise of the options are used to purchase shares of the company's common stock in the market at the average market price.

Front 19

Financial reporting

Back 19

nancial reporting refers to how companies show their financial performance and financial analysis refers to using the information to make economic decisions.

The objective of financial statements, not analysis, is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. The role of financial statement analysis, not reporting, is to use the information in a company’s financial statements, along with other relevant information, to assess a company’s past performance in order to draw conclusions about the company’s ability to generate cash and profits in the future.