Balance Sheet

Question 1

What are accrued liabilities?

Answer 1

Expenses that the company has incurred but not yet paid

Question 2

What is accumulated depreciation?

Answer 2

Estimated amount of the fixed asset the company has used up since acquisition

Question 3

What is allowance for doubtful accounts?

Answer 3

The amount the company is owed by customers that it estimates it won’t receive

Question 4

What does the balance sheet express?

Answer 4

Expresses a companies assets, liabilities, and owner equity at a point in time

Question 5

What defines assets/liabilities as current?

Answer 5

Assets expected to be converted to cash in one year/obligations that will require payment within a year

Question 6

Equity (meaning, equation)

Answer 6

A) The value that the owners contributed to the company
+
B)Retained earnings

= Assets - liabilities

Question 7

What are intangible assets?

Answer 7

Assets not physical but still contributing

Question 8

What is Non-current liability?

Answer 8

Long term liability, debt, obligations that won’t be satisfied by current assets

Question 9

Who delegates and who makes accounting rules?

Answer 9

SEC delegates to FASB (faz-bee), the financial accounting standards board

Question 10

Who makes international accounting rules and what are they called?

Answer 10

International financial reporting standards (IFRS) established by the IASB

Question 11

Who is responsible for financial reporting?

Answer 11

Company management

Question 12

What do auditors do?

Answer 12

Express an unqualified, modified, or adverse opinion about whether the statements are presented fairly according to gaap

Question 13

What is the balance sheet?

Answer 13

Financial position of a co on a specific date

Question 14

What is the income statement ?

Answer 14

Results of operations over a given period of time using accrual accounting

Question 15

What is a statement of cash flows?

Answer 15

Sources and uses of cash over a given period

Question 16

What is a statement of stockholders equity?

Answer 16

Changes in owner’s equity over a period of time

Question 17

What are the three sections of the cash flow statement, and what does each cover?

Answer 17

Operating (day to day business activities), investing (acquisition or disposal of long-lived productive assets, financing (relating to owners and creditors)

Question 18

What is accrual accounting?

Answer 18

Recognition of revenue and expenses tied to business activities

Question 19

Net income equation?

Answer 19

Net income =
Revenue - expenses

(Doesn’t equal change in cash)

Question 20

How to calculate retained earnings?

Answer 20

Net income - dividends

Question 21

Owners’ equity = ? (Not A = L + E)

Answer 21

Contributed capital + retained earnings

Question 22

Retained earnings=?

Answer 22

Prior retained earnings
+net income
-dividends

Question 23

Net income =?

Answer 23

Revenues - expenses

Question 24

Complete balance sheet equation?

Answer 24

Assets =
Liabilities
+ contributed capital
+ prior retained earnings
+ revenues
- expenses
-dividends

Question 25

When is an asset recognized?

Answer 25

When it is acquired The value of its benefits (increasing cash inflow or reducing outflow) can be measured in a reasonable degree of precision

Question 26

When is a liability recognized?

Answer 26

Obligation based on benefits or services received in the past The amount and timing is reasonably certain

Question 27

What is equation for retained earnings at the end of a fiscal year?

Answer 27

RE(end) = RE(begin) + net income - dividends

Question 28

What happens when a dividend is declared?

Answer 28

1. Not an expense 2. Reduction of retained earnings 3. Creates a liability until paid

Question 29

List the four types of ratios

Answer 29

Liquidity ratios Capital adequacy ratios Asset quality ratios Earnings ratios

Question 30

Define liquidity ratios and characteristics

Answer 30

Current ratio = current assets / liabilities, > 1 desired Quick/acid-test ratio = cash, marketable securities, receivables / current liabilities; > 1 desired, lacks inventory

Question 31

Define capital adequacy ratios

Answer 31

Debt ratio = total liabilities / assets; want around 0.5 Interest coverage ratio = earnings before interest, tax / interest expense; want well above 1

Question 32

Define asset quality ratios

Answer 32

Inventory turnover ratio = cogs / average inventory; how quickly inventory is moving; higher is better Asset turnover ratio = sales / average total assets; how efficiently the comps assets are being used to drive sales; higher is better

Question 33

Define earnings ratios

Answer 33

Ratios to compare different size comps Profit margin/return on sales ratio = net income / sales; higher is better Return on assets ratio = net income / average total assets; higher is better

Question 34

Define return on equity and component ratios

Answer 34

ROE = net income / book value of shareholders equity; how profitably the firm has been able to invest shareholder funds ROE = net profit margins (net income/sales) * asset turnover (sales/assets) * financial leverage (assets/equity)

Question 35

Days receivable formula

Answer 35

365 * average receivables / sales

Question 36

Days inventory formula

Answer 36

365 * average inventory / cost of sales

Question 37

Days payable formula

Answer 37

365 * average payable / cgs

Question 38

Receivable turnover formula

Answer 38

Sales / average receivables

Question 39

Inventory turnover formula

Answer 39

Cgs/ average inventory

Question 40

Payable turnover formula

Answer 40

Cgs / average payables

Question 41

List main components of current assets

Answer 41

Cash, marketable securities, accounts receivable, prepaid expenses, inventory

Question 42

Define net debt to equity ratio

Answer 42

Book value of interest-bearing debt (net of cash) / book value of equity

Question 43

Define interest coverage ratio

Answer 43

Pretax earnings / interest charges

Question 44

Define cash flow coverage ratio

Answer 44

Cash flows / interest charges

Question 45

Define cash and marketable securities to total assets ratio and the type of ratio it is

Answer 45

(Cash + market securities) / total assets Liquidity ratio

Question 46

Define asset turnover ratio

Answer 46

Sales / total assets

Question 47

What is the cost principle?

Answer 47

Principle in asset valuation that assets are generally valued at their historical cost

Question 48

What is capital stock?

Answer 48

The money the company received when selling shares

Question 49

What are revenues?

Answer 49

Value received for goods sold or services preformed

Question 50

What are expenses?

Answer 50

Payment or obligations for goods or services received

Question 51

What is the revenue recognition principle?

Answer 51

Revenue is recognized when the good is delivered for the service is performed

Question 52

What is the Matching principle?

Answer 52

Expenses are matched to the same period as their related revenues or the time period where the expense benefits operations

Question 53

Define operating income

Answer 53

Gross margin/profit - operating expenses