FAR Flashcards
Which F/S would best assess liquidity?
Balance Sheet
Multi Step income statement prepared because:
more meaningful presentation of revenue & expenses
Multi Step Income statement
Gross Profit, Operating Profit, and Pretax Income from continuing operations
transactions that are infrequent but not unusual
component of income from continuing ops- not net of taxes
intra-period income tax allocation does not apply to
operating income
material loss presented separately as component of income from continuing ops when
unusual but not infrequent
Contingencies accrued and recognized as liability
when occurrence of liability is probable and amount can be reasonably estimated
Interest and Advertising are
NOT G&A expenses
Single step income statement
Total revenue =sum of all revenues
Discontinued ops reported at end of I/S
Cumulative change not reported
Statement of Comprehensive Income components
Net Income, Unrealized G/L on AFS securities, Foreign currency translation adjustment, unrecognized G/L on pension benefits, and deferred G/L on certain hedging transactions
unrealized loss on investments in noncurrent marketable securities
would cause earnings and comprehensive income to differ
purpose of reporting comprehensive income
to show all changes to equity, including changes that currently are not required part of net income. Reflects all changes to equity from owner and nonowner sources
comprehensive income and its components should
Be presented as part of the Income Statement or as a separate a financial statement following the Income Statement.
Comprehensive income for a period is the:
Sum of net income and other comprehensive income for the period.
The Statement of Changes in Equity:
Reconciles all of the beginning and ending balances in the equity accounts.
The primary purpose of a Statement of Cash Flows is to provide relevant information about:
The cash receipts and cash disbursements of an enterprise during a period.
A reconciliation of ending retained earnings to net cash flow from operations.
is not disclosed on the Statement of Cash Flows, either on the face of the statement or in a separate schedule, when prepared under the direct method
Purchase of cash equivalent
has no bearing on statement of cash flows (it’s a wash)
Cash flow per share is specifically prohibited from
being disclosed unless it is based on contractual amounts.
The cash flows from the sale of property, plant, and equipment would be shown as a cash inflow under
the investing section in the Statement of Cash Flows.
the operating activities section of a cash flow statement prepared using the indirect method would include
gain on the sale of a plant asset. It is a noncash item that is used to reconcile net income to cash flows from operations.
Cashflow from operating activities : Direct Approach
presents operating cash flow by classes of sources and uses
Cashflow from operating activities : Indirect Approach
presents operating cash flow by adjusting accrual net income to operating cash flow (reconciliation of net income and net operating cash flow) for example would include gain on sale of plant asset as noncash item to reconcile net income to cash flows
Cash from Operating Activities
any cash inflow or outflow not classified as investing or financing (settlement of lawsuit, interest payments)
Cash from Investing Activities
cash inflows and outflows related to “investment in” and disposal of noncash assets (disposal of held to maturity/AFS securities, purchase of long-term assets, etc)
Cash from Financing Activities
cash inflows and outflows related to how the entity is financed (sale of stock, proceeds of borrowing, payment of dividends)
Financing activities of statement of cashflows includes
cash effects of transactions obtaining resources from owners and providing them with a return on their investment
Concentration of credit risks
disclosed in notes to F/s
Summary of significant accounting polices should include
depreciation method
basis of profit recognition on LT construction contracts
–info regarding important accounting methods and policies chosen by firm
Material related party transactions must be disclosed unless
are ordinary business transactions, such as payment of employees and other routine transactions.
Quick Ratio
cash + net AR + marketable securities/current liabilities
A/R Turnover
Avg. A/R/Net Credit sales x 365
Inventory Turnover
COGS/avg. inventory
Acid test ratio
cash + net AR/current liabilities
Times Earned Interest Ratio
Income before int. exp and tax/interest expense
Nongovernmental NFP orgs required to report financial statements on…
economic resources measurement focus.
4 NFP categories
- colleges & universities
- hospitals/healthcare entities
- voluntary health & welfare orgs
- other (including religious orgs)
operating expenses for a nongovernmental not-for-profit organization should be reported as
change in unrestricted net assets
