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ACCT 202 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Financial Statement Analysis

A

applies analytical tools to financial statements and related data for making business decisions

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2
Q

Internal Users of Accounting Information

A

manages and operate the company

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3
Q

Types of Internal Users

A
  • managers
  • officers
  • internal auditors
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4
Q

External Users of Accounting Information

A

NOT directly involved in running the company

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5
Q

Types of External Users

A
  • shareholders
  • lenders
  • suppliers
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6
Q

Building Blocks of Analysis

A
  • liquidity and efficiency
  • solvency
  • profitability
  • market prospects
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7
Q

Liquidity and Efficiency

A

ability to meet short-term obligations and to efficiently generate revenues

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8
Q

Solvency

A

ability to generate future revenues and meet long-term obligations

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9
Q

Profitability

A

ability to provide financial rewards sufficient to attract and retain financing

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10
Q

Market Prospects

A

ability to generate positive market expectations

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11
Q

Types of General-Purpose Financial Statements

A
  • income statement
  • balance sheet
  • statement of Stockholders’ Equity
  • statement of cash flows
  • notes to the financial statements
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12
Q

Financial Reporting

A

communication of financial information useful for making investment, credit, and other business decisions

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13
Q

Standards for Comparison

A
  • intracompany
  • competitors
  • industry
  • guidelines
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14
Q

Intracompany

A

company’s current performance is compared to its prior performance and its relations between financial items

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15
Q

Competitor

A

provides standards for comparisions

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16
Q

Industry

A

industry statistics provide standards for comparisions

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17
Q

Guidelines

A

(rules of thumb)
standards of comparisons can develop from experience

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18
Q

Tools for Analysis

A
  • horizontal analysis
  • vertical analysis
  • ratio analysis
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19
Q

Horizontal Analysis

A

comparing the financial condition and performance across time

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20
Q

Vertical Analysis

A

comparing the financial condition and performance to a base amount

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21
Q

Ratio Analysis

A

measurement of key relations between financial statement items

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22
Q

Methods of Horizontal Analysis

A
  • Dollar change
  • Percent change
  • Trend analysis
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23
Q

Dollar Change

A

= analysis period amount - base period amount

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24
Q

Base period

A

refers to the financial statements used for comparison

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25
Q

Analysis Period

A

refers to the financial statements under analysis

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26
Q

Percent Change

A

= (analysis period - base period) / base period X100

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27
Q

Trend Analysis

A

= (analysis period / base period) X 100
- used to reveal patterns in data across periods

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28
Q

Methods of Vertical Analysis

A
  • Common-size statements
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29
Q

Common-size Statements

A

= (analysis amount / base amount) X 100
- used to evaluate individual financial statements items in terms of a specific base amount

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30
Q

Depending on the _______ _______, you use a different base amount for Common-size Statemetns

A

financial statement

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31
Q

When using a Balance Sheet for Common-size Statements, what is your base amount

A

total assets

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32
Q

When using a Income Statement for Common-size Statements, what is your base amount

A

revenues

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33
Q

Working Capital

A

= current assets - current liabilities
- more working capital suggests a strong liquidity position and ability to pay debts

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34
Q

Current Ratio

A

= current assets / current liabilities
- measures the short-term debt-paying ability of a company
- a higher ratio suggest a strong ability to meet current obligations

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35
Q

Acid-Test Ratio

A

= (Cash + Short-term investments + current receivables) / current liabilities
- the most liquid types of current assets

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36
Q

What is referred to as Quick Assets

A

cash + short-term investments + current receivables

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37
Q

Accounts Receivable Turnover

A

= net sales / average accounts receivable, net
- measures how many times a company converts its receivables into cash

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38
Q

Average Accounts Receivable

A

= (Beg Accts. Rec. + End Accts. Rec.) / 2

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39
Q

Inventory Turnover

A

= Costs of Goods Sold / Average Inventory
= measures how long a company holds inventory before selling it

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40
Q

Average Inventory

A

= (Beginning Inventory + Ending Inventory) / 2

41
Q

Days’ Sales Uncollected

A

= (Accounts receivable, net / net sales) x 365
- measures how frequently a company collects its accounts receivable

42
Q

Days’ Sales in Inventory

A

= (ending inventory / costs of goods sold) X 365
- evaluates inventory liquidity

43
Q

Total Asset Turnover

A

= net sales / average total assets
- measures a company’s ability to use its assets to generate sales
- important indication of operating efficiency

44
Q

Average Assets

A

= (Beginning Assets + Ending Assets) / 2

45
Q

Types of Solvency

A
  • debt ratio
  • equity ratio
  • debt-to-equity ratio
  • times interest earned
46
Q

Debt Ratio

A

= total liabilities / total liabilities and equity X 100
- shows total liabilities as a percent of total assets

47
Q

Equity Ratio

A

= total equity / total liabilities and equity x 100
- shows total equity as a percent of total assets

48
Q

Debt-to-Equity Ratio

A

= total liabilities / total equity
- measures what portion of the company’s assets are contributed by creditors

49
Q

Times Interest Earned

A

= income before interest and taxes / interest expense
- the most common measure of a company’s ability to pay interest

50
Q

Income before interest and taxes

A

= net income + interest expense + income taxes

51
Q

Types of Profitability

A
  • Profit Margin
  • Return on Total Assets
  • Return on Common Stockholders’ Equity
52
Q

Profit Margin

A

= net income / net sales
- measures a company’s ability to earn net income from each sales dollar

53
Q

Return on Total Assets

A

= net income / average total assets
- measures how well assets are utilized by the company

54
Q

Return on Common Stockholders’ Equity

A

= (net income - preferred dividends) / average common stockholders’ equity
- indicated how the company’s ability to earn income for common stockholders

55
Q

Types of Market Prospects

A
  • Price-Earnings Ratio
  • Dividend Yield
56
Q

Price-Earning Ratio

A

= market price per common share / earnings per share
- measures market expectations for future growth

57
Q

Dividend Yield

A

= annual cash dividends per share / market price per share
- compares the dividend-paying performance of different companies

58
Q

Sections of Analysis Reporting

A
  • Executive summary
  • Analysis overview
  • Evidential Matter
  • Assumptions
  • Key factors
  • Inferences
59
Q

Executive Summary

A

brief analysis of results and conclusions

60
Q

Analysis Overview

A

background on the company, its industry, and the economy

61
Q

Evidential Matter

A

Financial statements and information used in the analysis, including ratios, trends, comparisons, and all analytical measures

62
Q

Assumptions

A

list of assumptions regarding the company’s industry and economic environment

63
Q

Key factors

A

list of favorable and unfavorable factors, both quantitative and qualitative, for company performance

64
Q

Inferences

A

forecasts, estimates, interpretations, and conclusions of the analysis report

65
Q

Managerial Accounting

A

provides financial and non-financial information for managers of an organization and other decision-makers

66
Q

Purpose of Managerial Accounting

A
  • determine the costs of an organization’s products/services
  • planning future activities
  • comparing actual results to planned results
67
Q

Planning

A

process of setting goals and making plans to achieve them

68
Q

Control

A

process of monitoring planning decisions and evaluating an organization’s activities and employees

69
Q

Total Fixed Costs

A

do not change when activity changes
- remains constant

70
Q

Total Variable Costs

A

change in proportion to activity changes

71
Q

Direct Costs

A

traceable to a single cost object
Ex. material and labor cost for a product

72
Q

Indirect Cost

A

costs that cannot be traced to a single cost object
Ex. maintenance expenditure benefiting two or more departments

73
Q

Product Cost

A

production costs necessary to create a product and consist of: direct materials, direct labor, and manufacturing overhead

74
Q

Manufacturing Overhead

A

production costs other than direct materials and direct labor

75
Q

Period Costs

A

Non-production costs and are usually associated with activities linked to a time period
Ex. salaries, advertising expenses, depreciation

76
Q

Direct Materials Costs

A

Expenditures for direct materials that are separately and readily traced through the manufacturing process to finished goods
Ex. steal, pedals, brakes, cables

77
Q

Direct Labor Costs

A

Wages and salaries for direct labor that are separately and readily traced through the manufacturing process to finished goods
Ex. assembly line workers

78
Q

Factory Overhead Costs

A

all manufacturing costs that are not direct materials/labor and are not separately traced to finished goods
Ex. maintenance, cleaning supplies, factory utility costs

79
Q

Prime Costs

A

direct material and direct labor

80
Q

Conversion Costs

A

direct labor and manufacturing overhead

81
Q

Raw Materials Inventory

A

materials waiting to be processed; direct or indirect

82
Q

Work in Process inventory

A

partially complete products

83
Q

Finished Goods Inventory

A

completed products for sale

84
Q

Merchandiser Income Statement

A

Beg. merchandise inventory + cost of goods purchases - ending merch. inventory = costs of goods sold

85
Q

Manufacturer Income statement

A

beg. finished goods inventory + costs of goods manufactured - Ending finished goods inventory = costs of goods sold

86
Q

Total Manufacturing Costs

A

= direct materials use + direct labor + factory overhead

87
Q

Costs of Goods Manufactured

A

= total manufacturing costs + beginning work in process - ending work in process

88
Q

Trends in Managerial Accounting

A
  • customer orientation
  • global economy
  • E-commerce
  • service economy
  • lean practices
  • value chain
89
Q

Just-in-time manufacturing

A

system that acquires inventory and produces only when needed

90
Q

Raw materials Inventory Turnover

A

= raw materials used / average materials inventory

91
Q

Days’ Sales in raw materials inventory

A

= (ending raw materials inventory / raw materials use) X 365

92
Q

Process Operations

A

mass production of products in a continuous flow of steps

93
Q

Job Order Production

A

each customized product is manufactured separately

94
Q

Receiving Report

A

source document for recording materials received in both a materials ledger card and in the general ledger

95
Q

Materials Ledger Cards

A

updated when materials are purchased and issued for use in production

96
Q

Predetermined Overhead Rate

A

estimated overhead costs / estimated activity base**

**direct labor or direct materials

97
Q

Types of Managerial Accounting Decisions

A
  • measure the profitability of an individual store
  • estimate product cost for a new line of shoes
  • determine the location and size of a new plant
  • determine whether to expand into a new market
  • evaluate a purchasing department’s performance
98
Q

Types of Financial Accounting Decisions

A
  • determine whether to lend to a company
  • prepare financial reports according to GAAP
  • determine whether to buy another company’s stock

ACCT 202 (1 decks)

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