FINANCIAL MODELING S2 Flashcards
Accounts that need adjustments
- accounts receivable
- prepaid rent
- unearned revenue
- salary payable, salary expense
- cost of supplies, COGS, supplies
Why do companies make accounting adjustments ?
so that financial statements are accurate and complete
Accounts that don’t need adjustments
- cash
- equipment and PPE
- accounts payable
- share capital / common stock
- dividends
Prepaid expenses
defferal : advance cash payments that will ultimately become expenses
Unearned revenues
defferal : cash received from customers before any services or goods are provided
Accrued expenses
accrual : expenses incurred and recognized on the income statement even though cash has not been paid yet
Accrued revenues
accrual : revenues earned and recognized on the income statement even though cash is not received yet
Depreciation
process of allocating cost to expense for a long-term tangible assets such as PPE
What is the role of Statement of stockholder’s equity ?
it reconciles the beginning and ending balances of stockholders’ equity accounts.
Common stock and additional paid-in capital increase…
by the proceeds from the sale of stock
Retained earnings increase…
by net income and decrease by dividends to shareholders and by stock purchased and retired
income statement definition :
measures income using GAAP principles and provide information about the economic viability of the company’s products and services
statement of cash flows definition :
provides information about the company’s ability to generate cash from those same transactions
Defferals definition
Cash is paid or received before expenses or revenues are recognized
Accruals definition
Cash is paid or received after expenses or revenues are recognized
