FA1

Question 1

Assets

Answer 1

VALUE

Liability + Shareholders’ Equity

A = L + SE

anything a company owns or controls created from past transaction that gives a future economic benefit

Question 2

Account Receivable

Answer 2

Asset

money a company’s customers owe for goods or services they have received but not yet paid for

Question 3

Inventory

Answer 3

Asset

any physical property, merchandise, or other sales items that are held for resale, to be sold at a future date

Question 4

Property, Plant, and Equipment (PPE)

Answer 4

Asset

property - land, real estate
plant - buildings
equipment - machines, computer

Question 5

Liabilities

Answer 5

OWE

a debt or any future financial obligation that a business owes

Question 6

Accounts Payable

Answer 6

Liability

a company’s short-term debt to its suppliers for products received before payment

Question 7

Notes Payable

Answer 7

Liability

written agreements in which one party agrees to pay the other party a certain amount of cash

Bank loans, student loans, mortgages, promissory note

Question 8

Shareholders’ Equity

Answer 8

SE = Asset - Liabilities

the total amount of money that would be returned to shareholders if a company were liquidated and all debts paid off

Question 9

Retained earnings

Answer 9

part of Shareholders’ Equity

How much profit is kept in company

the amount of a company’s net income left over after paying dividends and other distributions

Question 10

Common Stock/Shares

Answer 10

Shareholders’ Equity

a security that represents ownership in a corporation

• buying shares –> buying equity of a company

Question 11

Revenues

Answer 11

Earn

the amount of money a company generates from its operations over a set period of time

• sales
• income

Question 12

Expenses

Answer 12

Cost

the cost required for something; the money spent on something.

Question 13

Dividends

Answer 13

a distribution of a company’s profits to its shareholders

• shareholders pulling profits from company’s retained earnings

Question 14

Accumulated deficit

Answer 14

negative retained earnings

a company pays more dividends than it earns in total net profit

Question 15

Current term Asset

Answer 15

Expected to be liquidated or used within 1 year or less

ex: inventory, cash

Question 16

Long term Asset

Answer 16

Expected to use or liquidate beyond normal operating cycle of 12 months

ex: PPE, patents, trademarks, long term investments (real estate, stocks, bonds)

Question 17

Income Statement

Answer 17

Net Income = Revenue - Expenses

how profitable was the company?

• statement of operations
• p & l (profit and loss)

Question 18

Statement of Changes In Equity

Answer 18

list shareholders of equity accounts
- what happened?
- begin, change, end

• common shares
• retained earnings

Question 19

Balance Sheet

Answer 19

lists all company assets, liabilities, and shareholders’
equity accounts

Question 20

Cash Flow Statement

Answer 20

cash: begin, change, end

• hard to manipulate cash
• cash flow numbers thought as trustworthy
• companies need cash to survive

Question 21

Current Ratio

Answer 21

Current Assets / Current Liabilities

> 1.5 safe
< 1.5 riskier
below 1 - not enough money to pay bills

does company have enough short term assets to cover short term debts?

Question 22

Debt Ratio

Answer 22

Total Liabilities / Total Assets

percentage of a company’s assets that are provided via debt

bigger is riskier
want lower debt ratio

Question 23

Equity Ratio

Answer 23

Total Shareholders’ Equity / Total Assets

sold assets, paid debts,
percentage of the money afterwards that goes to shareholders

want higher equity ratio