Accounting

Question 1

FASB

Answer 1

Financial Accounting Standards Board

Question 2

GAAP

Answer 2

Generally Accepted Accounting Principles

Question 3

SFAS

Answer 3

Statement of Financial Accounting Standards

Question 4

IFRS

Answer 4

International Financial Reporting Standards

Question 5

Historical Cost

Answer 5

The cost recorded is the initial cost of a purchase…this is done to avoid subjectivity and tedious appraisals of property.

Question 6

Accrual Accounting

Answer 6

Governs the company’s timing in recording its revenues and expenses

Question 7

Revenue Recognition

Answer 7

revenues must be recorded when earned and measurable

Question 8

Matching Principle

Answer 8

Costs associated with making a product must be recorded during the same period as revenue generated from that product

Question 9

What is conservatism?

Answer 9

Assets and revenues should not be overstated

Liabilities and expenses should not be understated

Question 10

DEF 14A

Answer 10

Notification to Shareholders of matters to be brought before the shareholders meeting

Question 11

S-1

Answer 11

When a company decides to go public and sell securities as part of an IPO

Question 12

S-4

Answer 12

Filed once a deal is actually done

Question 13

20-F

Answer 13

Annual report filed by foreign company issues securities in the United States.

Question 14

What are the three most common accounting statements analyst research?

Answer 14

Income Statement
Balance Sheet
Statement of Cashflows

Question 15

What is another word, a more colloquial word for EBIT?

Answer 15

Operating Income

Question 16

What is the rationale for using EBITDA over EBIT as a way to compare companies? 2 reasons.

Answer 16

1. ) D&A is a huge non cash expense and by removing them analysts can provide a more accurate picture of ‘real’ profits during the year
2. ) Companies have a lot of leeway in accounting for D&A which can skew the comparison of profitability

Question 17

How do analyst measure profitability?

Answer 17

EPS
EBIT
EBITDA

Question 18

Gross Profit (equation)

Answer 18

Revenues - COGS

Question 19

Gross Profit Margin (equation)

Answer 19

Gross Profit / Revenues

Question 20

Gross Profit Percentage (equation)

Answer 20

Gross Profit / Revenue

Question 21

Operating Profit Margin (equation)

Answer 21

EBIT / Revenue

Question 22

Asset (equation)

Answer 22

liabilities + equity

Question 23

What is the difference between a balance sheet and Income Statement?

Answer 23

X

Question 24

What three requirements must be met for a company’s resource to qualify as an asset?

Answer 24

1. ) Company must own the resource
2. ) The resource must be of value
3. ) The resource must have a quantifiable, measurable cost

Question 25

Define Accounts Receivable (A/R)

Answer 25

Payment owed to a business by its customers for products and services already delivered to them

Question 26

Define Prepaid expenses

Answer 26

When a company prepays for things like utilities, insurance and rents, the right to the future service becomes an asset

Question 27

Define Property, Plant & Equipment (PP&E)

Answer 27

Land, Buildings, and machinery used in the manufacture of the company’s services and products

Question 28

Intangible Assets & Goodwill

Answer 28

Non-physical assets such as patents, trademarks, and goodwill acquired by the company that have value based on the rights belonging to that company

Question 29

Accounts Payable

Answer 29

A company’s obligations to suppliers for services and products already purchased from them, but which have not been paid. In other words, accounts payable represent the company’s unpaid bills to its suppliers for services obtained on credit from them.

Question 30

Accrued Expenses

Answer 30

Expenses like employee compensation that the company has incurred, but for which it has not yet paid.

Question 31

Short term Debt

Answer 31

Debt due within 12 months.

Question 32

Preferred Stock

Answer 32

Stock that has special rights and takes priority over common stock.

Question 33

Common Stock

Answer 33

Represents capital received by a company when it issues shares.

Question 34

Treasury Stock

Answer 34

Common stock that had been issued and then reacquired (bought back) by a company .

Question 35

Retained Earnings

Answer 35

Total company earnings / losses since its inception less all dividends.

Question 36

What is double entry accounting?

Answer 36

the recording of two sides of every economic event –1) the funding source and 2) how the funds are used.

Question 37

What is the difference between a credit and debit.

Answer 37

a credit is the source of funds and a debit is the use of funds.

Question 38

A/R

Answer 38

Accounts Receivable

Question 39

PP&E

Answer 39

Property, Plant, & Equipment

Question 40

What is a ‘Current Asset’

Answer 40

An asset that can be converted into cash within 12 months.

Assets are listed from most liquid to least liquid on the balance sheet.

Question 41

What is a ‘Current Liability’

Answer 41

Liabilities that are to be paid within 12 months. Things like short term debt and Accounts payable.

Liabilities are listed in order of when they are to be paid on the balance sheet.

Question 42

Remember, … and Think! Line items for Balance Sheet ws. Income Statement.

Answer 42

Remember, … and Think! Line items for Balance Sheet ws. Income Statement.

Question 43

Why are prepaid expenses recognized as an asset?

Answer 43

Because the benefit of prepaid expenses has not yet been received.

Question 44

How is PP&E reported differently under GAAP and IFRS?

Answer 44

Under US GAAP, write up is not accepted while under IFRS writing up or down to reflect fair market value is permitted (but rarely used).

Question 45

Why does GAAP and IFRS use accrual accounting?

Answer 45

To give investors a better understanding of the profitability of a company.

Question 46

What is ‘Net Income’?

Answer 46

Income after all expenses have been paid out

Question 47

What is ‘treasury stock’?

Answer 47

Shares that have been issued, but subsequently repurchased by the company.

Question 48

What does EPS measure

Answer 48

EPS measures how much the total current period profits belong to each shareholder.