Accounting 260 - Exam One Flashcards
What is the basic accounting equation?
Assets = Liabilities + Stockholders’ Equity (+ Revenues - Expenses)
How do you find Net Income?
Net Income = Revenues - Expenses
What are current assets and current liabilities?
current assets are assets that businesses will use up or turn into cash within 12 months on the balance sheet date; current liabilities are debts and other obligations that will be paid or fulfilled within 12 months of the balance sheet date
Current ratio?
current ratio = current assets / current liabilities; tells us whether current assets are sufficient to pay current liabilities, evaluate liquidity, high current ratio is good; usually range 1,0 -2,0
quick ratio?
quick ratio = cash + short-term investments + accounts received / current liabilities; measure companys capacity to pay its current liabilities without needing to sell inventory or obtain additional financing
Debt-to-Asset ratio?
debt-to-asset ratio = total liabilities / total assets; shows how much a business is owned by creditors compared with how much the company’s assets are owned by shareholders
Gross profit %?
Gross profit % = Net sales - COGS / Net sales - compare company’s production efficiency over time
profit margin %
net income / sales (revenue) (multiple by 100 to get percentage)
working capital equation
working capital = current assets - current liabilities
Income statement
financial performance of the business during the current accounting period; Revenues - Expenses = Net income; sales revenue, wages expense, rent expense, etc.
Statement of Retained Earnings
earnings retained in the business during the current accounting period added to those of prior periods; beginning of RE + Net income - Dividends = Ending RE; NI comes from income statement; Retained earnings are the amount of profit a company has left over after paying all its direct costs, indirect costs, income taxes and its dividends to shareholders.
Balance Sheet
the financial position of a business at a point in time! Assets = Liabilities + Stockholders’ Equity; Assets, current assets, total assets, Liabilities, current L, total L, SE, total L & SE; cash, receivables, supplies, etc.
Statement of Cash Flows
Activities that caused increases and decreases in cash during the current accounting period ; Cash collected from customers, cash paid to suppliers, cash paid for equipment
What is debited?
Assets (cash, A/R, Supplies, Inventory, prepaid expenses, investments, PPE, Intangible assets) Expenses, Dividends increase with assets
What is Credited?
Liabilities (A/P, Rent payable, Income tax payable, Salaries & Wages Payable, Deferred Revenue, N/P,) Stockholders’ Equity (common stock, preferred stock, retained Earnings) Revenue increase with credit
” Is she B/S?”
- Income statement 2. Statement of Stockholders’ Equity (RE) 3. Balance sheet
Accounting Process (start to finish)
Analyze Transactions –> JE –> General Ledger (T-accounts) –> Unadjusted TB –> adjust JE –> T account edit –> adjusted trial balance –> create financial statements –> closing JE –> close out T accounts –> Post closing trial balance
What are temporary accounts and what are examples?
accounts where balance is not carried forward ; revenue, expense (COGS, supplies, salaries), gain and loss, interest
what is cash basis accounting? (don’t really use)
only record when tangible cash is involved; recognizes revenues and expenses at the time cash is received or paid out
what is accrual basis accounting?
recognizes income at the time the revenue is earned and records expenses when liabilities are incurred regardless of when cash is received or paid; also during the time the service happens (even if tangible cash isn’t involved)
Earnings per Share?
EPS = Net income / average # of common shares outstanding
Receivables turnover? (not as important)
Net sales revenue / avg. net receivables
Inventory turnover? (not as important)
COGS / avg. inventory
what is and what ratios are included in Profitability ratios?
indicate how efficiently a company generates profits/ income; Net profit, gross profit and earnings per share
