Accounting

Question 1

3 important statement ?

Answer 1

• Income Statement (PROFIT)
• Balance Sheet
• Cash Flow Statement

Question 1

Why looking to the Balance Sheet first ?

Answer 1

• Is the company solvent ?
• Can the company pay its bills = Cash compared to current liabilities
• Owner’s Equity growing over time ?

Cash Line Increase : good sign

Question 2

Which statement is the least affected by financial art ?

Answer 2

Cash Flow Statement

Question 4

Income Statement ?

Answer 4

(Profit and Loss / Statement of Earnings / Statement of Operations)
= PROFIT

Show financial position (company profit) in period of Time (accrual accounting)

• Sales (Revenues) : product delivered NOT REAL MONEY

* Costs (Expenses) : those incurred in generating the sale recorded the time period
=> COGS / COS
=> Operating expenses
=> Depreciation of Capital Expenditures
=> Non operating expenses

• Profit (Income)

______________________________

Revenues - Expenses (coGS / Taxes…) = Net Profit

PROFIT => MONEY

Question 5

In the income statement difference between Operating Expenses and Non operating expenses ?

Answer 5

Operating Expenses :
Costs that are required to keep a business going day to day
* Salaries 
* Benefits
* Insurance costs
* Depreciation 
* Amortization 

Operating Profit = Gross Profit - Operating Expenses

Question 6

Income statement actual versus Pro Forma ?

Answer 6

Actual : normal version

Pro Forma : without non operating expenses (without the write off)

Question 6

3 types of profit ?

Answer 6

• Gross profit =
  Sales - COGS
• Operating profit (or EBIT) =
  Gross profit - Operating Expenses
• Net profit (or bottom line)
  Profit - (COGS / Operating Expenses / Taxes / Interest)

Question 7

Balance Sheet ?

Answer 7

Shows financial position at a point in time.

Assets = Liabilities + Owner’s Equity

Assets :
- Current (inf 12 months) :

• Long term

Liabilities :
- current (inf 12 months):
=> Accounts Payable
- long term

Owner’s Equity

• Stock
• Retained Earnings

Question 7

Capital Expenditures ?

Answer 7

Pourchasse of an item considered a long term investment

If inf X dollar : Operating Expense
If > X dollar : Capital Expenditure

Depreciation over the useful lifetime
(Non cash expense)

Question 8

Earnings per Share ?

Answer 8

EPS = net profit / number of shares

Question 9

Equity ?

Answer 9

(Or Retained Earnings / Accumulated Earnings)

Equity : Accumulation of Profit and Losses

Equity = Assets - Liabilities
Or
Equity = Capital Shareholders + Profit Earns - Dividend

• Preferred Shares
• Common Shares
• Additional Paid-in Capital
• Retained Earnings : Profits réinventée instead of being paid in divisent sur

Question 10

Profitability ratios

Answer 10

(Derived from the income statement)
How profitable a company is

=> Return on asset

=> Return on equity

Question 11

Types of Assets ?

Answer 11

• Cash and cash equivalents
  => Money
  => Asset turn into cash : liquid asset
• Accounts Receivable (or A/R) : amount customer owe the company
• Inventory
  => Finished Goods Inventory
  => Work in Progress Inventory
  => Rawmaterial Inventory
• Property, Plant, Equipment (Purchase price)
• Goodwill (Copyright / Acquisition)
• Accrual and Prepaid Assets

Question 13

Where appear dividend ?

Answer 13

In the statement of retained earnings

Net income - Dividend

Question 14

Liquidity ratio ?

Answer 14

(Derived from Balance Sheet)
How easily a company will be able to meet short term financial obligation

• Current ratio = Current asset / current Liabilities
• Quick ratio = (current asset - Inventory) / current Liabilities

=> If you can’t pay bills, may apply for a loan

Question 16

Cash Flow Statement ?

Answer 16

Money a company has in bank + anything readily be turned in cash

Cash Flow Statement : Cash coming in / cash going out and the difference

Different type of Cash Flow :
* From Operating Activities
=> Turning PROFIT into CASH

• From Investing Activities : in assets +
  => Future Growth +++
• From Financing Activities : borrowing and paying loans
  => Dependant of the outside ?

Question 17

Financial leverage ratios

Answer 17

What extent a company is using debt

Debt Ratio = Liabilities / Asset

Debt to Equity ratio = Liabilities / Owner’s Equity

If ratio increase
=> Return on equity increase but risky

Question 22

Owner Earning ?

Answer 22

Measure of the company’s ability to generate cash

Question 24

Debit and Credit ?

Answer 24

Debit : Decrease asset

Credit : Decrease Liabilities and Owner Equity

Question 28

Efficiency ratio ?

Answer 28

How well you are managing the assets

=> How improve company profit and cash flow

Question 29

Three generic sources of financing ?

Answer 29

• Owner financing
• Other equity investment
• Debt