Financial Statements Flashcards

1
Q

Real accounts =

A

Real accounts are the accounts that end up on the balance sheet and maintain a cumulative balance over time. For example, Green Mountain Coffee’s real accounts include cash, accounts receivable, inventory, and long term debt

All asset liability and owner’s equity accounts are real accounts, also sometimes referred to as stock measures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Nominal Accounts =

A

Nominal Accounts are those that reflect activity only of a specific accounting period. For instance, interest expense would only look at the interest expense of that period only. All revenue and expense accounts fall into this category, also known as flow measures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The balance sheet shows

A

a company’s financial position as of a specific date. It provides a snapshot of the business at a specific point in time, such as December 31. The balance sheet shows all of the asset, liability, and owners’ equity accounts as of that specific date.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Under US GAAP, the balance sheet presents accounts in the following order:

A

current assets, non-current assets, current liabilities, non-current liabilities, and owners’ equity. Within each asset and liability group, items are presented in order of liquidity, with the most liquid (those that can be most easily and quickly converted to cash) first.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Under IFRS, the balance sheet is generally presented with

A

the least liquid items first, and in the following order: non-current assets, current assets, owners’ equity, non-current liabilities, and current liabilities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

The income statement shows

A

a company’s financial performance over a period of time. It shows all revenue and expense accounts for a given period of time, such as for the year ending December 31, 2014. Using trial balances from any two points in time, a business can create an income statement that will tell the financial story of the activities for that period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

At the end of each accounting period, the balance of all nominal accounts are

A

transferred to retained earnings (part of owners’ equity, a real account), so their balances start back at zero at the beginning of each accounting period.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Suppose your company issued a 20 year bond to raise additional capital. As you are preparing the balance sheet at the end of 2013, you see that the bond will come due in June of 2014. In which section of the balance sheet does the bond belong?

A

The correct answer is current liabilities.

Because the bond will come due in less than a year, the amount owed is considered a current liability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

In the US, the accounts are listed in the order of

A

how quickly and easily they can be converted to cash. This is known as liquidity. More liquid items are listed first and the remaining items are listed in order of decreasing liquidity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Under international standards, or IFRS, the items are presented in

A

the reverse order to GAAP; the least liquid items go first and additional items are listed in order of increasing liquidity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Gross Profit

A

Revenue - COGS = Gross Profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

For the year 2012, suppose Cardullo’s Gourmet Shoppe had revenues of $1,100,000. Their income statement shows that Gross Profit was $500,000 and Other Expenses were $350,000.

What was Cardullo’s Cost of Goods Sold (COGS)?

A

Revenue - COGS = Gross Profit
Since we know Revenues were $1,100,000 and Gross Profit was $500,000, COGS must be $600,000. Other expenses is not needed in this calculation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Operating expenses are

A

costs that the business incurs to run its normal operations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Operating Income

A

the income before taxes and interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Above the Line, Below the Line =

A

The “line” generally refers to gross profit. Above that line on the income statement, typically, are sales and COGS (cost of goods sold) or COS (cost of sales or cost of services). Below the line are operating expenses, interest, and taxes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Net Income

A

shows the net financial performance for the period after taking into account all of the revenues and expenses of the business.

This number reveals whether the business was profitable and shows the total profit generated for the owners of the business during the accounting period.

17
Q

We obtain the tax expense by

A

by multiplying profit before taxes by the income tax rate. The result is known as the bottom line or net income.

18
Q

At the end of each accounting period, the balance of all nominal accounts are transferred to…

A

to retained earnings (part of owners’ equity, a real account), so their balances start back at zero at the beginning of each accounting period.

19
Q

The income statement can show the following measures of income:

A

gross profit (sales less cost of goods sold), operating income (gross profit less operating expenses), income before taxes (operating income less non-operating expenses), and finally, net income (income before taxes less taxes).