Accounting - Financial Statement Analysis Flashcards
What is accrual accounting?
Revenues and expenses are recognised and recorded when an economic exchange occurs, not when cash is exchanged
What is the alternative to accrual accounting? What are the differences?
Cash accounting, which states that revenues and expenses should be recorded at the time that the cash exchanges hands, rather than when the economic transaction occurs (accrual accounting)
Under accrual accounting, when will revenue be recorded? What about costs?
Revenues recorded when product is delivered. Costs are recorded when the corresponding revenues are.
What is bad debt expense? How does this relate to net revenues?
An accounting entry that lists the dollar amount of receivables your company does not expect to collect
Goes against net revenues, and reduces net income.
How do you recognise revenue from long-term projects?
Two methods:
* % of completion method
* Completed contract method (rarely used in US)
When should costs be expensed on the income statement?
At the same time that the corresponding revenues are
What is the matching principle?
Revenues and costs should be recognised at the same point in time on the income statement
Do COGS include administrative costs?
Not included in COGS. Rather, these expenses are included under S,G & A
What are S, G and A expenses?
Represent the operating expenses not directly associated with the production or procurement of the product or service that the company sells to generate revenue
Do all companies split out R&D as a separate line item?
Research-intensive industries such as healthcare and technology often identify R&D separately because they constitute such a large component of total expenses.
Other companies aggragate the R&D expense within other operating expenses or SG&A
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