Deck9 Flashcards
When Depreciation Expense in Debited, what account is Credited
Accumulated Depreciation
Do add or subtract a Gain to/from Net Income under the Indirect Method of Statement of Cash Flows
Subtract - It was already used to arrive at Net Income but is an Investing activity and should be Subtracted out to arrive at Operating Activity
What is the Debited Account when Inventory gets Credited(Sold)?
COGS
For Indirect Method SCF if there is a “Debit to Expense” and a Credit “Not to Cash” they should all be handled the same way
Yes
What must be disclosed in the notes of financial statements in a company’s summary of significant accounting policies?
Revenue recognition policies
When must “related-party” transactions be disclosed?
When they are not for the ordinary course of business (aka employee wages etc)
What would be the equation for average day’s sales in inventory?
365/Inventory Turnover
What do Liquidity/Solvency measure?
The ability to meet maturing obligations
What is Working Capital?
How much resources the company has immediately to meet maturing obligations
Equation for Working Capital?
Current Assets - Current Liabilities - the extent to which current assets exceeds current liabilities
How does the Current Ratio relate to working capital?
It states Working Capital in a Ratio form - CA/CL
Quick Ratio excludes which assets as compared to the current ratio?
Inventory and Prepaids
What does the Times Interest Earned Ratio measure?
How well the current earnings can cover Interest Expense for the period
Times Earned Interest Ratio Equation
(Net Income+Interest Expense+Income Tax Expense)/Interest Expense
Accounts Receivable Turnover Ratio
=Net Credit Sales/{(Beg AR+End AR)/2}
