Financial Statements Flashcards
What are Financial reports used for?
They are used by investors, managers and other stake holders to determine how well a business is performing.
Statements that can be prepared from Trial Balance
Balance Sheet & Income Statement
Accounts Listed on Trial Balance - types
1)Permanent Accounts 2)Temporary Accounts
What Permanent Accounts/Real Accounts?
1)Reported on Balance Sheet, Continuous accounts that have a cumulative balance over time.
Example of Permanent Accounts
Cash, Accounts Receivables, Inventory. Assets, Liabilities & Owner’ s Equity
What are Temporary/Nominal accounts
Listed on Income Statement. Show activity only in a period of time and are reset to zero at the beginning of new acct period.
Examples of Temporary Accounts
General & Admin expenses, sales, tax expenses, Income Stmt accounts: Revenues, expenses, gains, losses.
Stock Measures Are
Permanent Accounts because they are measured at a certain point in time
Flow Measures Are
Temporary Accounts because they measure the flow of transactions over a period of time.
Retained Earnings
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
Closing Process
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
What is a Balance Sheet?
Stmt of financial position and Snapshot of a business at a certain point of time
Types Of Assets
1) Current 2)Non Current
What are current Assets?
If an asset will be used within a year or one operating cycle whichever is longer, it is called current asset
What is operating cycle?
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
Examples of Current Assets
Cash, Inventory, Accts Receivables
Non-Current Assets
All assets that will held for more than a year are non-current assets.
Example of Non-Current Assets
Buildings, Equipment, LEasehold improvements (tenants make long-lived changes to property to enhance)
An asset can be split into current and non-current asset
Long term notes receivable. Amount it will receive in current year will go in current portion and rest in non-current
ORdering Of Current Asset accounts under GAAP
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)
Ordering Of Non-Current Asset Accounts
1) Long term Stock investments
2) Fixed Assets (Equipment, Accumulated Depreciation, property)
3) Company’s Intangible Assets (goodwill)
Ordering Of Asset Accounts in IRFS
Reverse with Lease Liquid accounts listed first
What is Depreciation?
It is the decrease in the value of an asset over time
What is accumulated Depreciation?
Sum of all depreciation recognized over the life of an asset
Depreciation is Debit or Credit?
Credit because it decreases the asset value. Its a contra asset account because its balance is the opposite of normal asset account balances
What is current Liability?
Those liabilities that are due within one year
What are Non-Current liabilities?
Those liabilities that are due in more than one year
Ordering Of Current Liabilities under US GAAP
Notes/Loans Payable Current Portion OF Long Term Debt Accounts Payable Wages Payable Accrued Expenses (Accrued utilities liability) Accrued interest liability Accrued Income Taxes
What are Accrued Expenses?
Expenses that are recognized on the income statement but are not due yet
Examples Of Accrued Expense
Accrued wages, accrued interest expense, accrued income taxes
What is a Bond?
A common form of long term debt - Liability
Order of Non Current Liabilities
Long-term debt
Deferred Income taxes
Order of Accounts In Equity Section (Both US GAAP and IFRS)
Preferred Stock Common Stock Additional Paid- In Capital Retained Earnings Accumulated other income Treasury Stock
What is Preferred Stock?
Shares Of Stock issued to public are common stock or preferred stock
What is Partner Capital?
Contributions made by owners in partnership
What is Paid-In Capital/Contributed Capital?
Preffered Stock + Common Stock + Addnal Paid in capital
Accumulated Other comprehensive income
Unrealized Gains, Losses that haven’t been settled
Once Gains and losses are settled, which account they go to?
Retained Earnings
What is Treasury Stock
Stock repurchased by the company, effectively reducing the amount of stock available on the open market
For a Bank, loans are
Assets, because they lend money and receive interest on them
What is Income Statement?
Stmt that shows how a business is performing and shows changes over a given period
What does Income sTatement show?
Revenues, expenses, losses and gains how they change ove rtime. Story of company’s operating activities
Balance Sheet & Incoem Statement are connected by
Retained Earnings
Income Stmt reflects all changes that affected
Retained Earnings (Component of owner’s equity)
Net Income (Loss)
Revenues & Gaines - Expenses & Losses
Retained Earnings increase if Net income
increases
Other Names for Net Income
Bottom Line, Net Profit and Net earnings
Gross Profit/Gross Income
Sales/Revenue - COGS
Examples of COGS
Raw material costs Cost of storing inventory before sold Factory Depreciation Wages for workers Rent paid for factory space shipping costs of products sold
Example of operating expenses
wages pension contributions rent depreciation utilities selling expenses advertising expenses combines all into Selling, General and Administrative expenses (SG&A) R&D
Operating Profit/Operating Income/Earnings Before Interest and Taxes (EBIT)
=Gross Profit - Operating Expenses
Income Before Taxes
Operating Income + Other Income - Other Expenses
Examples Of Other income
Gains or Loss on sale of asset
Net Income
Income before taxes - taxes
Consolidation of reporting transactions in stmts
If they are material or relavant they are separate, if not they are consolidated.
Accounting Period
Length of time over which a business evaluates its financial performance
Income Statement vs Balance Sheet
Income Statement gives info company’s performance over time
Balance sheet gives company’s financial position at a point in time
