Financial Statements

Question 1

What are Financial reports used for?

Answer 1

They are used by investors, managers and other stake holders to determine how well a business is performing.

Question 2

Statements that can be prepared from Trial Balance

Answer 2

Balance Sheet & Income Statement

Question 3

Accounts Listed on Trial Balance - types

Answer 3

1)Permanent Accounts 2)Temporary Accounts

Question 4

What Permanent Accounts/Real Accounts?

Answer 4

1)Reported on Balance Sheet, Continuous accounts that have a cumulative balance over time.

Question 5

Example of Permanent Accounts

Answer 5

Cash, Accounts Receivables, Inventory. Assets, Liabilities & Owner’ s Equity

Question 6

What are Temporary/Nominal accounts

Answer 6

Listed on Income Statement. Show activity only in a period of time and are reset to zero at the beginning of new acct period.

Question 7

Examples of Temporary Accounts

Answer 7

General & Admin expenses, sales, tax expenses, Income Stmt accounts: Revenues, expenses, gains, losses.

Question 8

Stock Measures Are

Answer 8

Permanent Accounts because they are measured at a certain point in time

Question 9

Flow Measures Are

Answer 9

Temporary Accounts because they measure the flow of transactions over a period of time.

Question 10

Retained Earnings

Answer 10

Account has balance in the beginning of the year unlike other accounts that reflect balance at the end of the year. Retained earnings are increased or decreased by revenues,expenses, losses, gains

Question 11

Closing Process

Answer 11

1) End of Fiscal year, net effect of nominal accounts is transferred to retained earnings
2) It resets nominal accounts to zero and updates retained earnings balance

Question 12

What is a Balance Sheet?

Answer 12

Stmt of financial position and Snapshot of a business at a certain point of time

Question 13

Types Of Assets

Answer 13

1) Current 2)Non Current

Question 14

What are current Assets?

Answer 14

If an asset will be used within a year or one operating cycle whichever is longer, it is called current asset

Question 15

What is operating cycle?

Answer 15

Amount of time it takes business to produce its goods, sell the goods and receive cash from its customers. Most operating cycles are less than year

Question 16

Examples of Current Assets

Answer 16

Cash, Inventory, Accts Receivables

Question 17

Non-Current Assets

Answer 17

All assets that will held for more than a year are non-current assets.

Question 18

Example of Non-Current Assets

Answer 18

Buildings, Equipment, LEasehold improvements (tenants make long-lived changes to property to enhance)

Question 19

An asset can be split into current and non-current asset

Answer 19

Long term notes receivable. Amount it will receive in current year will go in current portion and rest in non-current

Question 20

ORdering Of Current Asset accounts under GAAP

Answer 20

1) Most liquid accounts listed first.
Example:
Cash
Short-Term Investments
Accounts Receivable (sales already done and waiting to receive cash)
Inventory (needs to be sold and wait to receive cash)
Pre-payments(Pre-paid rent)

Question 21

Ordering Of Non-Current Asset Accounts

Answer 21

1) Long term Stock investments
2) Fixed Assets (Equipment, Accumulated Depreciation, property)
3) Company’s Intangible Assets (goodwill)

Question 22

Ordering Of Asset Accounts in IRFS

Answer 22

Reverse with Lease Liquid accounts listed first

Question 23

What is Depreciation?

Answer 23

It is the decrease in the value of an asset over time

Question 24

What is accumulated Depreciation?

Answer 24

Sum of all depreciation recognized over the life of an asset

Question 25

Depreciation is Debit or Credit?

Answer 25

Credit because it decreases the asset value. Its a contra asset account because its balance is the opposite of normal asset account balances

Question 26

What is current Liability?

Answer 26

Those liabilities that are due within one year

Question 27

What are Non-Current liabilities?

Answer 27

Those liabilities that are due in more than one year

Question 28

Ordering Of Current Liabilities under US GAAP

Answer 28

``` Notes/Loans Payable Current Portion OF Long Term Debt Accounts Payable Wages Payable Accrued Expenses (Accrued utilities liability) Accrued interest liability Accrued Income Taxes ```

Question 29

What are Accrued Expenses?

Answer 29

Expenses that are recognized on the income statement but are not due yet

Question 30

Examples Of Accrued Expense

Answer 30

Accrued wages, accrued interest expense, accrued income taxes

Question 31

What is a Bond?

Answer 31

A common form of long term debt - Liability

Question 32

Order of Non Current Liabilities

Answer 32

Long-term debt | Deferred Income taxes

Question 33

Order of Accounts In Equity Section (Both US GAAP and IFRS)

Answer 33

``` Preferred Stock Common Stock Additional Paid- In Capital Retained Earnings Accumulated other income Treasury Stock ```

Question 34

What is Preferred Stock?

Answer 34

Shares Of Stock issued to public are common stock or preferred stock

Question 35

What is Partner Capital?

Answer 35

Contributions made by owners in partnership

Question 36

What is Paid-In Capital/Contributed Capital?

Answer 36

Preffered Stock + Common Stock + Addnal Paid in capital

Question 37

Accumulated Other comprehensive income

Answer 37

Unrealized Gains, Losses that haven't been settled

Question 38

Once Gains and losses are settled, which account they go to?

Answer 38

Retained Earnings

Question 39

What is Treasury Stock

Answer 39

Stock repurchased by the company, effectively reducing the amount of stock available on the open market

Question 40

For a Bank, loans are

Answer 40

Assets, because they lend money and receive interest on them

Question 41

What is Income Statement?

Answer 41

Stmt that shows how a business is performing and shows changes over a given period

Question 42

What does Income sTatement show?

Answer 42

Revenues, expenses, losses and gains how they change ove rtime. Story of company's operating activities

Question 43

Balance Sheet & Incoem Statement are connected by

Answer 43

Retained Earnings

Question 44

Income Stmt reflects all changes that affected

Answer 44

Retained Earnings (Component of owner's equity)

Question 45

Net Income (Loss)

Answer 45

Revenues & Gaines - Expenses & Losses

Question 46

Retained Earnings increase if Net income

Answer 46

increases

Question 47

Other Names for Net Income

Answer 47

Bottom Line, Net Profit and Net earnings

Question 48

Gross Profit/Gross Income

Answer 48

Sales/Revenue - COGS

Question 49

Examples of COGS

Answer 49

``` Raw material costs Cost of storing inventory before sold Factory Depreciation Wages for workers Rent paid for factory space shipping costs of products sold ```

Question 50

Example of operating expenses

Answer 50

``` wages pension contributions rent depreciation utilities selling expenses advertising expenses combines all into Selling, General and Administrative expenses (SG&A) R&D ```

Question 51

Operating Profit/Operating Income/Earnings Before Interest and Taxes (EBIT)

Answer 51

=Gross Profit - Operating Expenses

Question 52

Income Before Taxes

Answer 52

Operating Income + Other Income - Other Expenses

Question 53

Examples Of Other income

Answer 53

Gains or Loss on sale of asset

Question 54

Net Income

Answer 54

Income before taxes - taxes

Question 55

Consolidation of reporting transactions in stmts

Answer 55

If they are material or relavant they are separate, if not they are consolidated.

Question 56

Accounting Period

Answer 56

Length of time over which a business evaluates its financial performance

Question 57

Income Statement vs Balance Sheet

Answer 57

Income Statement gives info company's performance over time | Balance sheet gives company's financial position at a point in time