Deck #6 (F2)

Question 1

what is OCBOA?

Answer 1

the other comprehensive basis of accounting (cash or tax basis)

Question 2

what are the statements called for cash basis?

Answer 2

1. Income Statement is the “statement of cash receipts and disbursements”
2. Balance Sheet is the “statement of cash and equity”

Question 3

what is the formula for converting cash basis revenue to accrual basis revenue?

Answer 3

cash basis revenue
\+ ending AR
- beginning AR
- ending unearned revenue
\+ beginning unearned revenue
= Accrual basis revenue

Question 4

what is the formula for converting cash paid for purchases to accrual basis cost of goods sold

Answer 4

cash paid for purchases
\+ ending AP
- beginning AP
- ending inventory 
\+ beginning inventory
= COGS

Question 5

what is a liquidity ratio?

Answer 5

shows the ST risk of distress.

higher the ratio, lower the risk.

examples: current ratio, quick ratio

Question 6

current ratio?

Answer 6

Current assets
/
Current Liabilities

Question 7

quick ratio?

Answer 7

(Cash + ST securities + net receivable)
/
current liability

Question 8

what is an activity ratio?

Answer 8

shows how effectively an entity is using their assets

examples: days sales, AR turnover, inventory turnover, AP turnover

Question 9

AR turnover ratio?

Answer 9

Sales (net)
/
Average AR (net)

note: higher the better, sales are up

Question 10

Days sales in AR?

Answer 10

ending accounts receivable (net)
/
(net sales / 365)

note: lower the better, receivables are being paid

Question 11

Inventory turnover?

Answer 11

COGS / average inventory

note: higher the better, inventory is selling quick

Question 12

days in inventory?

Answer 12

ending inventory
/
(COGS / 365)

note: lower the better, less days before it is sold

Question 13

AP Turnover?

Answer 13

COGS / average AP

note: higher the better, high turnover shows no delay in payments

Question 14

Asset turnover?

Answer 14

net sales / average assets

note: higher the better, effective asset use to generate sales

Question 15

what is a profitability ratio?

Answer 15

measures success or failure of an entity for a period of time

examples: ROA, Profit margin, DuPont, return on _____

Question 16

profit margin?

Answer 16

net income / net sales

note: higher the better

Question 17

ROA?

Answer 17

net income / average total assets

note: higher the better

Question 18

what is a coverage ratio?

Answer 18

measures of security or protection for LT creditors or investors

examples: debt to equity, total debt, equity multiplier

Question 19

debt to equity ratio?

Answer 19

total liabilities / total equity

note: lower the better

Question 20

equity multiplier?

Answer 20

total assets/total equity

note: higher the better

Question 21

Investor ratios?

1. Earnings per share
2. Dividend payout

Answer 21

1. EPS is
   income available to common shareholders / weighted average shares outstanding (higher the better)
2. cash dividends / net income