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1. BA-FM 22P(2018)-A (LEC) Financial Analysis and Reporting > Chapter 4: Financial Statement Analysis > Flashcards

Chapter 4: Financial Statement Analysis Flashcards

1
Q

Why Study Financial Statements

A
  1. Assess current performance through financial statement analysis
  2. Monitor and control operations, and
  3. Forecast future performance.
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2
Q

What Are The Fundamental Concepts and Assumptions?

A
  • Separate Entity Concept
  • Cost Principle
  • Monetary Measurement Concept
  • Going Concern Assumption
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3
Q

The organizational unit for which accounting records are maintained.

A

Entity

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4
Q

The activities of an entity are to be separate from those of its individual owners.

A

Separate entity concept

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5
Q

In the Cost Principle

All transactions are recorded at _______________.

A

historical cost

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6
Q

is assumed to represent the fair market value of the item at the date of the transaction because it reflects the actual use of resources by independent parties.

A

Historical cost

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7
Q

Accountants measure only those ____________________ that can be measured in monetary terms.

A

economic activities

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8
Q

Listed values may not be the same as actual market values:

A
  • Inflation
  • Measurement issues
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9
Q

An entity will have a continuing existence for the foreseeable future.

A

The Going Concern Assumption

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10
Q

The life of a business is divided into distinct and relatively short time periods so the accounting information can be timely, generally 12 months or less.

A

The Time Period Concept

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11
Q

Revenues are recorded when two main criteria are met:

  1. The earning process is substantially complete
  2. Cash has either been collected or collection is reasonably assured.
A

Revenue Recognition

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12
Q

All costs and expenses incurred in generating revenues must be recognized in the same reporting period as the related revenues.

A

The Matching Principle

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13
Q

This process of matching expenses with recognized revenues determines the amount of net income reported on the income statement.

A

The Matching Principle

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14
Q

Basic financial statements:

A
  • Balance Sheet
    Income Statement
    ŽStatement of Retained Earnings
    Statement of Cash Flows
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15
Q

Summary of the financial position of a company at a particular date

A

The Balance Sheet

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16
Q

financial statement that indicates the worth or financial condition of a business as of a certain date.

A

The Balance Sheet

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17
Q

Sources owned by the company like cash, accounts receivable, inventory, land, buildings, equipment and intangible items

A

Assets

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18
Q

The total amount of money the firm owes its creditors like accounts payable, notes payable and mortgages payable

A

Liabilities

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19
Q

net assets after all obligations have been satisfied or is the difference in the value of the firm’s assets and the firm’s liabilities

A

Owners’ Equity

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20
Q

consists of firm’s cash plus other assets the firm expects to convert to cash within 12 months or less, such as receivables and inventory.

A

Current Assets

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21
Q

are assets that the firm does not expect to sell within one year. For example, plant and equipment, land.

A

Fixed assets

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22
Q

represent the amount that the firm owes to creditors that must be repaid within a period of 12 months or less such as accounts payable, notes payable.

A

Current liabilities

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23
Q

refer to debt with maturities longer than a year such as bank loans, bonds.

A

Long-term liabilities

24
Q

The amount the company received from selling stock to investors.

A

The stockholder’s equity

25
Q

It may be shown as common stock in the balance sheet or it may be divided into two components:

A
  • par value
  • additional paid in capital above par
26
Q

is the stated or face value a firm puts on each share of stock.

A

Par value

27
Q

is the additional amount the firm raised when it sold the shares.

A

Paid in capital

28
Q

the portion of net income that has been retained (i.e., not paid in dividends) from prior years operations.

A

retained earnings

29
Q

users can identify significant changes over time. They have more than one year on the Balance Sheet.

A

Comparative financial statement

30
Q

—are useful to use, since information is then organized into a format that is more readable than a simple listing of all the accounts that comprise a balance sheet.

A

Classified financial statements a

31
Q

Balance Sheet Limitations

A

ŒAssets recorded at historical value

Only recognizes assets that can be expressed in monetary terms

ŽOwners’ equity is usually less than the company’s market value

32
Q

Shows the results of a company’s operations (activities) over a period of time.

A

The Income Statement

33
Q

show the reader how much profit or loss an organization generated during a reporting period.

A

The Income Statement

34
Q

Earnings from sale of goods or performance of services

A

Total Sales

35
Q

Assets (cash or AR) created through business operations

A

Revenues

36
Q

Refunds and adjustments for unsatisfactory merchandise or service

A

Sales Returns and Allowances

37
Q

—Total sales minus sales returns or allowances

A

Net Sales

38
Q

Cost to the business for merchandise or goods sold

A

Cost of Goods Sold

39
Q

Overhead or cost incurred in operating a business

A

Operating Expenses

40
Q

Revenues - Expenses

A

Net Income or (Net Loss)

41
Q

An additional financial statement that identifies changes in retained earnings from one accounting period to the next.

A

Statement of Retained Earnings

42
Q

How to get ending retained earnings

A

Beg. RE + Net Income - Dividends Paid

43
Q

Net income results in:

A

Increase in net assets
Increase in retained earnings
Increase in owners’ equity

44
Q

Dividends result in:

A

Decrease in net assets
Decrease in retained earnings
Decrease in owners’ equity

45
Q

Reports the amount of cash collected and paid out by a company in operating, investing and financing activities for a period of time.

A

Statement of Cash Flows

46
Q

Complementary to the income statement.

A

Statement of Cash Flows

47
Q

Indicates ability of a company to generate income in the future.

A

Statement of Cash Flows

48
Q

is used by firms to explain changes in their cash balances over a period of time by identifying all of the sources and uses of cash.

A

Statement of Cash Flows

49
Q

— Sell goods or services
— Sell other assets or by borrowing
— Receive cash from investments by owners

A

Cash inflows

50
Q

— Pay operating expenses
— Expand operations, repay loans
— Pay owners a return on investment

A

Cash outflows

51
Q

Cash Inflow
* Sale of goods or services
* Sale of investments in trading securities
* Interest revenue
* Dividend revenue

Cash Outflow
* Inventory payments
* Interest payments
* Wages
* Utilities, rent
* Taxes

A

Operating Activities

52
Q

Cash Inflow
* Sale of plant assets
* Sale of securities, other than
trading securities
* Collection of principal on loans

Cash Outflow
* Purchase of plant assets
* Purchase of securities, other than
trading securities
* Making of loans to other entities

A

Investing Activities

53
Q

Cash Inflow
* Issuance of own stock
* Borrowing

Cash Outflow
* Dividend payments
* Repaying principal on
borrowing
* Treasury stock purchase

A

Financing Activities

54
Q

is any activity that brings cash into the firm. For example, sale of equipment.

A

Source of cash

55
Q

is any activity that causes cash to leave the firm. For example, payment of taxes.

A

Use of cash

1. BA-FM 22P(2018)-A (LEC) Financial Analysis and Reporting (7 decks)

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