Formulas Flashcards
Calc Net Income
From accrual to cash basis
C=L+E-O:
Change in Cash = change in Liabilities + change in Equity - change in Other assets
Liabilities= Def revenue, accrued expenses
Other Assets = Prepaid Exp, AR (if increase then deduct, if decrease then add)
Calc Net Income
From cash to accrual basis
E=A-L
Change in Equity = change in Assets- change in Liabilities
T Account
D / C = Debit (left), Credit (right)
Dr=A,E, = Assets, Expenses, drawing account
Cr=C, L, R = Capital, Liab, Rev
What would a multi-step Income Statement be prepared:
Because it is more meaningful presentation of revenue and expenses. it is a more meaningful presentation of revenue and expenses: gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations.
Which can be reported on B/S
a. Treasury stock of own firm
b. Idle machinery
c. Cash surrender value of life insurance on corp exec
d. Allowance for decline in market value of non current equity investments
all but A
A firm’s treasury stock is not an asset of that firm. A firm cannot own its own stock. The other items listed are appropriately included in assets.
What can be classified as investing activities
sale of PPE
What can be classified as financing activities
issuance of common stock to the shareholders
Which type of material related-party transactions require disclosure?
All those other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business.
Material related party transactions must be disclosed unless they are ordinary business transactions, such as payment of employees and other routine transactions.
What should go in the notes to F/S
-concentration of credit risks
Avg days’ sales in inventory
Purpose & formula
365/inventory turnover
Inventory Turnover
Purpose & formula
details how much inventory is sold over a period. The higher the better = selling goods quickly more demand. gives insight into how well company manages its inv.
Inventory turnover = 2 methods
COGS / avg inventory
Sales / inventory
Inventory Turnover
Purpose & formula
details how much inventory is sold over a period. The higher the better = selling goods quickly means more demand. gives insight into how well company manages its inv. smooths out the seasonal behaviors
Inventory turnover = 2 methods
COGS / avg inventory
Sales / inventory
Quick Ratio
Purpose & formula
indicator of a company’s short-term liquidity position and measures a company’s ability to meet its short-term obligations with its most liquid assets.
(Curr Assets - Invt - Prepaid exp ) / Curr Liabilities
OR
(Cash & Cash Equiv & Markt sec & AR ) / Curr Liabilities
Current Ratio
Purpose & formula
liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.
Curries assets / currency liabilities
Current Ratio aka working capital ratio
Purpose & formula
liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.
ALL curr assets / ALL curr liabilities
