Accounting Flashcards
What are the two straight line depreciation methods?
Straight line and units of production.
What are the two accelerated depreciation methods?
Sum of the year’s digits, declining balance.
What are the characteristics of goodwill?
It is an intangible asset and it is not amortised, instead it is tested annually for impairment.
What are the characteristics of natural resources as an asset?
Total cost is charged to depletion expenses over the useful period.
What is unearned revenue?
When a costumer pay for services or products before delivery. It is a current liability.
What is the advantage of long term debt?
It is tax deductible.
What is financial leverage?
The difference between ROI and ROE
How does Bonds Premium and Discount affect BS?
Bonds discount is recorded as a contra liability, bond premium is recorded as a addition to liabilities. (Bonds premium when the r offered by the bond is higher than the market r)
What is APIC?
The excess of the amount received from the sale of preferred or common stock over par. It is a part of stockholders equity.
What is preferred stock?
It has no voting rights, but receives priority over common stock on dividend payments.
What are stocks dividends?
When dividends are paid in form of additional shares. They do not affect the par value of the stock or stockholder’s equity. Stockholders retain percentage ownership in the company. Reduces per share market value.
When is revenue earned vs realized?
Revenue is realised when a product or service has been exchanged for cash. It is earned when a firm has completed or substantially completed the activities it must to be entitled the revenue benefits.
What is the gross profit ratio?
The profit expressed as a percentage of the total sales.
How can you use the desired gross profit ratio to set the selling price?
P = Cost of product /(1- Desired Ratio)
What are the main operating expenses?
Selling expenses, general admin expenses, R&D expenses.
What is operating income ?
The difference between gross profit and operating expenses.
How do you calculate earning per share?
Net income/Avg. n of shares of common stock outstanding during the year
What are the difference in single and multiple step presentation of the income statement?
Single step goes from net sales straight. to profit, while multiple step differentiates between gross profit and income from operations.
What does the statement of cash flows show?
Why and how cash and cash equivalents changed by reporting changes in operating activities, investing activities, financing activities.
What are the different ways to present the statement of Cash Flows?
Direct and Indirect. Direct method starts cash received, while indirect start from net income.
What happens to depreciation and amortisation in the Cash Flow?
They get added to net income as they do not affect cash.
What are the ratios for profitability?
Working capital = CA-CL
Current Ratio = CA/CL
Acid-Test Ratio = (cash+Ar)/CL
What are the ratios for activity?
Turnover
AR Turnover
What are the ratios for profitability?
ROI
ROE
P/E ratio
DIv Yield
What are the ratios for financial leverage?
Debt Ratio
Debt/Equity ratio
Times interest earned
What is the current ratio useful for?
Judging a company’s current bill-paying abilities. A ratio of 2.0 onwards is considered adequate.