Financial Accounting Final Exam (Chp. 9-10)

Front 1

Purpose of the Statement of Cash Flows

Back 1

it shows all the cash the company has received & all the cash the company has disbursed during an accounting period (under GAAP and IFRS). It provides crucial information to decision makers to help predict future cash flows of the business; shows how the business acquired its cash during the current year; shows how the business spent its cash during the current year.

Front 2

4 required financial statements (identify)

Back 2

Balance sheet, statement of cash flows, income statement, & statement of the changes in shareholder’s equity.

Front 3

3 required sections on the Statement of Cash Flows

Back 3

Operating, Investing, and Financing activities.

Front 4

Operating, Investing, and Financing cash flows (identify)

Back 4

Review a few problems on the homework to do this (“inflow/outflow,” “operating/investing/financing”). Remember NOT to think of this type of problem in terms of the accounting equation/balance sheet.
• Remember that revenues & expenses are placed together.
• Inventories & supplies are….expenses needed to keep the business running.
• “Money borrowed from a local bank” --- a long-term liability.
• A bond would fall under a liability category.
• “Proceeds” (a.k.a collection)…..signal INFLOW.

Front 5

The income statement presentation of discontinued operations & extraordinary items

Back 5

The income statement shows AFTER the income from continuing operations:
• Income, gains and losses, & net of taxes (of each item) from Discontinued Operations
• Gains and losses, net of taxes (for the previous item) from Extraordinary Items.

Front 6

Items included in subtotal for income from continuing operations (identify)

Back 6

The net of taxes [the tax effects of each item].

Front 7

Gain/losses that qualify as a discontinued operation (identify)

Back 7

Any part of the company eliminated by being sold by the company (if reported correctly to GAAP and IFRS).

Front 8

Gain/losses that qualify as an extraordinary item (identify)

Back 8

Volcano eruptions; a takeover of foreign operations by the foreign government, & the effects of new laws or regulations that result in a 1-time cost to comply.

Front 9

Horizontal analysis amounts (calculate)

Back 9

Evaluating financial statement amounts across time (%). The base year is the previous year. Once selected, it remains the base year:

[The difference of the costs between 2 years ÷ the base year]

Front 10

Vertical analysis amounts (calculate)

Back 10

Comparing items in financial statements in a single year (%). In the income statement, the base is the Net sales; in the balance sheet, the base is Total assets:
[Each amount of an item ÷ the base].

Front 11

Liquidity ratios (define & identify)

Back 11

Measures the company’s ability to pay its current bills & operating costs.

• Current ratio

• Inventory turnover ratio = [COGS ÷ Average inventory]

• Accounts receivable turnover ratio = [Net credit sales ÷ Average net accounts receivable]

Front 12

Solvency ratios (define & identify)

Back 12

Measures the company’s ability to meet its long-term obligations & to survive over a long period of time.

• Debt-to-equity = [Total liabilities ÷ Total equity]

Front 13

Profitability ratios (define & identify)

Back 13

Measures the operating or income performance of a company.
• Return on assets = [Net income ÷ Average total assets]

• Asset turnover ratio = [Net sales ÷ Average total assets]

• Return on equity = [(Net Income – preferred dividends) ÷ (Average common shareholders’ equity)]

• Profit margin ratio = [Net Income ÷ Net sales]

• Gross profit ratio = [Gross profit ÷ Net sales]