First midterm Flashcards
The purpose of the income statement
is to show the profitability of a company for a particular period of time. It shows the difference between the revenues that a company has generated and the expenses incurred.
What are two commonly used methods in the preparation of income statements?
the single step method, and the multiple step method
single step format
the revenues and expenses are listed and the net income is calculated
multiple step format
there are intermediate measures of income
I Net sales or net revenues
This is the sum of all the proceeds that the company gets from selling goods and/or services
- goods sold (parduotų prekių ir paslaugų savikaina)
This is the amount that the merchandiser paid to acquire those goods or the manufacturer paid to produce them
I gross profit margin (bendrasis pelnas)
The difference between net sales and cost of goods sold
I operating expenses (veiklos sąnaudos)
These include selling and administrative expenses.
• Selling expenses result from the company’s effort to sell merchandise. These include advertising, promotion, and sales commissions as well as storage, packaging, and delivery costs (if paid by the seller).
• Administrative expenses include the personnel expenses, utilities, rent, insurance, some taxes, as well as other expenses to support day to day life of a business.
I Depreciation expense (nusidėvėjimas)
is the process of allocating the cost of fixed assets (equipment, buildings, machinery, furniture, hardware) over several accounting periods, in which those assets are used. Therefore, a depreciation expense is a portion of such an allocation attributable to just one accounting period.
I Operating profit (įprastinės veiklos pelnas) or earnings before interest and taxes (EBIT)
The difference between the gross profit margin and the operating (as well as depreciation) expenses. This item is extremely important for both, the managers of the companies, and the investors because it shows whether the company is able to generate profits from its usual day to day operations.
I Interest expense (palūkanų sąnaudos)
is the expense that a company incurs to finance its operations. This could come from borrowing money from banks, issuing bonds, or other sources of finance.
I income taxes (pelno mokesčiai)
These include the federal, state, and local taxes on the corporate earnings. Note that other taxes (e.g. real-estate, road, employee related taxes) are reported as a part of the administrative expenses.
I net income/loss (grynasis pelnas / nuostolis) or earnings after taxes (EAT)
The difference between net revenues and net expenses is called. the measure of the ultimate profitability of a company.
Purpose of the balance sheet
is to show what a business owns and owes at a particular point in time. That is why it is commonly referred to as the statement of financial position/condition. Please note that, as previously mentioned, the balance sheet reflects the financial position at a particular point in time.
All the items in the balance sheet are classified into three categories:
assets, liabilities, and stockholders’ equity
Assets
are the resources that the company owns, which will provide economic benefits in the future
Liabilities
are the company’s obligations, which will result in an outflow of economic benefits in the future. Usually those are monetary obligations (e.g. borrowed money, salaries owed to personnel, money owed to suppliers). However, in some cases, those could be non-monetary (e.g. an obligation to transfer an asset, or when the company has received cash for the service, which will be provided in the future - unearned revenues).
The following accounting equation should always hold when preparing a balance sheet:
Assets = Liabilities + Shareholders’ Equity
- Current assets (trumpalaikis turtas)
a. Cash and cash equivalent
b. Marketable securities
c. Accounts receivable
d. Inventories
e. Other current assets
B Accounts receivable
represent the money that is owed to the firm by customers who have purchased various goods and services.
B Inventories (atsargos)
physical products which will eventually be sold to the consumers in a finished form or as separate inputs in the manufacturing process.
Other current assets (kitas trumpalaikis turtas)
these are the assets that do not easily fall into any of the previously mentioned categories. Most frequently, these are various pre-paid expenses (e.g. insurance, taxes, advance payment).
B Non-current or Long-term assets (ilgalaikis turtas)
a. Tangible assets (materialusis turtas)
b. Intangible assets (nematerialusis turtas)
c. Investments (investicijos)
Tangible assets
these will most frequently include plant, property, and equipment (pastatai, statiniai, ir mašinos), vehicles (transportas), land (žemė), and other tangible assets. Plant, property and equipment are stated at historical cost and are subject to amortisation.
I depreciation
is the process of allocating the cost of plant property and equipment, vehicles, and other tangible assets over the periods of provided economic benefits.
