Accounting Flashcards
What is the primary purpose of US GAAP?
Accounting Standards Board (“FASB”) to determine the set of accounting rules
followed by publicly traded companies.
Under FASB, financial statements are required to be prepared in accordance with US
Generally Accepted Accounting Principles (“US GAAP”).
Through the standardization of financial reporting and ensuring all financials are
presented on a fair, consistent basis - the interests of investors and lenders are protected.
What are the main sections of a 10-K?
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What is the difference between the 10-K and 10-Q?
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Walk me through the three financial statements.
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Walk me through the income statement.
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Walk me through the balance sheet.
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Could you give further context on what assets, liabilities, and equity each represent?
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What are the typical line items you might find on the balance sheet?
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Walk me through the cash flow statement.
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How are the three financial statements connected?
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If you have a balance sheet and must choose between the income statement or cash flow
statement, which would you pick?
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Which is more important, the income statement or the cash flow statement?
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If you had to pick between either the income statement or cash flow
statement to analyze a company, which would you pick?
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Why is the income statement insufficient to assess the liquidity of a company?
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What are some discretionary management decisions that could inflate earnings?
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Tell me about the revenue recognition and matching principle used in accrual accounting.
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How does accrual accounting differ from cash-basis accounting?
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What is the difference between cost of goods sold and operating expenses?
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If depreciation is a non-cash expense, how does it affect net income?
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When do you capitalize vs. expense items under accrual accounting?
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Do companies prefer straight-line or accelerated depreciation?
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What is the relationship between depreciation and the salvage value assumption?
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Do companies depreciate land?
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How would a $10 increase in depreciation flow through the financial statements?
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A company acquired a machine for $5 million and has since generated $3 million in accumulated
depreciation. Today, the PP&E has a fair market value of $20 million. Under GAAP, what is the value
of that PP&E on the balance sheet?
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What is the difference between growth and maintenance capex?
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Which types of intangible assets are amortized?
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What is goodwill and how is it created?
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Can companies amortize goodwill?
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What is the “going concern” assumption used in accrual accounting?
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Explain the reasoning behind the principle of conservatism in accrual
accounting.
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Why are most assets recorded at their historical cost under accrual accounting?
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What role did fair-value accounting have in the subprime mortgage crisis?
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Why are the values of a company’s intangible assets not reflected on its balance sheet?
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If the share price of a company increases by 10%, what is the balance sheet impact?
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Do accounts receivable get captured on the income statement?
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Why are increases in accounts receivable a cash reduction on the cash flow statement?
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What is deferred revenue?
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Why is deferred revenue classified as a liability while accounts receivable is an asset?
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Why are increases in accounts payable shown as an increase in cash flow?
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Which section of the cash flow statement captures interest expense?
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What happens to the three financial statements if a company initiates a dividend?
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Do inventories get captured on the income statement?
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How should an increase in inventory get handled on the cash flow statement?
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What is the difference between LIFO and FIFO, and what are the implications on net income?
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What is the average cost method of inventory accounting?
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How do you calculate retained earnings for the current period?
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What does the retention ratio represent and how is it related to the dividend payout ratio?
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