1. Revision of basic accounting concepts

Question 1

Income Statement | Definition

Answer 1

shows revenue and expense flows during accounting period

-> profits/losses

Question 2

Cash Flow Statement | Definiton

Answer 2

shows flows of cash in and out of business during entire accounting period

-> how cash is generated/operated

Question 3

What´s the simple income satement format?

Answer 3

Sales Revenue - COGS = Gross Profit

Gross Profit - Operating Expenses (eg rent, salaries) = Operating Profit

Operating Profit + Non-operating income + non-operating expenses = Net Profit

-> G O N

Question 4

Does it have effect on profit or cash? (increase, decrease, no)

1. Repayment of borrowings
2. Making a profitable sale on credit
3. Buying a current asset on credit
4. receiving cash from a credit customer
5. depreciating a non current asset
6. buying some inventories for cash
7. making a share issue for cash

Answer 4

1. P: no | C: down
2. P: up | C no
3. no
4. P: no | C: up
5. P: down | C: no
6. P: no | C: down
7. P: no | C: up

Question 5

What migh be reasons why the cash generaed in a period wont be equal to the profit made?

1.
2.
3.
4.
5.
6.
7.
8.

Answer 5

• accounting mistakes
• depreciation: affects profit but not cash flow statement
• corruption
• bad debt
• accruals (expense income)
• credit sales, shows profit but no cash received
• trade receivables payment made by a customer in cash
• changes in cash balance without profit change

Question 6

Structure of Cash Flow Statement

Answer 6

Cash Flows from operating activities
minus or plus
Cash Flows from investing activities
minus or plus
Cash Flows from financing activities

equals

Net increase (or decrease) in cash and cash equivalents over the period

Question 7

Whats the statement of financial position and what does it measure?

Answer 7

• gives general overview of assets and liabilities

Question 8

How to calculate…

1. Gross profit?
2. Operating profit?
3. net profit?

Answer 8

1. sales revenue - COGS
2. gross profit - operating expenses (rent, salaries, electricity)
3. operating profit + non operating income - non operating expenses