Financial Statements and Planning Flashcards
Financial statements contain the financial information necessary to evaluate the company’s ___________.
performance.
-The financial statements cover all aspects of a company’s financial situation and act as a guide to the overall state of a company’s finances.
Financial statements in the USA must comply with the _______ set of standards.
GAAP.
- The GAAP, Generally Accepted Accounting Principles, is the benchmark standard to allow for easy comparison of financial statements between companies.
The GAAP (Generally Accepted Accounting Principles) is authorized by the ___________.
FASB.
- The FASB, Financial Accounting Standards Board, is the accounting professions’s rules setting body.
The ________ statement contains a financial summary of the company’s operating results for a particular period.
income.
- The income statement takes into account the company’s operating results, which are the earnings minus the operating costs and taxes.
Earnings before interest and tax (EBIT) is called the _________ profit.
operating.
- The operating profit is a measure of the company’s gross earning power from ongoing operations.
Net profits are earnings ________ tax.
after.
- Net means after tax and liabilities have been deducted.
The balance sheet balances the company’s _______ and debt or equity.
assets.
- In order to present an accurate summary of a company’s financial position, assets must be weighed against liabilities.
______ assets and liabilities are expected to be converted to cash within 12 months.
current.
- They are called current because they are soon converted to cash.
Long-term or fixed assets and liabilities are expected to stay on the company’s books for more than ____ months.
12.
- This is the definition of a long term or fixed asset.
The entry accounts ____________ in the Balance Sheet constitutes the total monies owed to the Company from credit sales made to Customers.
The entry ‘Inventories’ in the Balance Sheet indicates ___________ materials, partially and completed goods in the company’s possession.
raw.
- Even though the raw materials have not been utilized yet, they constitute part of the inventory of a company.
The net value of fixed asset are known as the ______ value.
book.
- The book value is calculated by obtaining the difference between the value of the gross fixed assets and the accumulated depreciation of those fixed assets.
_______ equity is a balance sheet item that refers to the book value of the company.
stockholders.
- This is the investment that shareholders have in a company. It is the difference between total assets and total liabilities, in other words, the owner’s share of the business.
The entry for ‘common stock’ on the balance sheet represents it’s ________ value.
par.
- This is the randomly appointed per share value used for accounting purposes.
The statement of retained earnings reconciles the _____ _____ of a company from the start to the end of the accounting period, to be retained in the company, after paying dividends.
net profit.
- The net profit figure is used to give an accurate picture of the earnings retained for company use.
The statement of cash flows summarizes a company’s ___________, investment and financing cash flows over a particular period.
operating.
- This relates to the production of a company’s products and services and so is an integral part of the cash flows of a company.
In preparing their financial statements, US based companies must convert their foreign currency assets and liabilities into dollars using the ______ ______ translation method.
current rate.
- This is the method determined by the FASB, standard no 52. The conversion occurs using the existing exchange rate on the fiscal year end date.
In a translated balance sheet, gains or losses from currency movements in using the current rate transalation method are accumulated in the ____________________ account.
Financial ratio analysis involves the application of a calculation and ___________ of those ratios in order to assess the company’s performance.
interpretation.
- This is fundamental to financial ratio analysis because the calculation by itself is meaningless without a benchmark for comparison.
Financial ratio analysis would be of interest to the company’s management, creditors and _____________.
shareholders.
- The shareholders, as owners of the company, will be interested in the company’s performance.
The two types of financial ratio comparisons are cross-section and ____-______ analysis.
time-series.
- These are the two types of comparisons for financial ratios.
Cross-sectional analysis refers to the comparison of a company’s financial ratios at the _____ ______ in time with other companies in the industry or with industry norms.
same point.
- Current data should be used for accurate results.
Evaluation of a company’s performance over time is called ___-____ analysis.
time-series.
- This evaluation compares current with past performance.
In cross-sectional analysis, it is important to investigate major deviations on either side of the norm because it usually indicates that there is a _________.
problem.
- Major deviations are usually a warning sign that something is not right with the company.