General Financial Statements Flashcards
What appears on the CFS?
- stuff on IS and affected NI but non-cash which needs adjusting
- not on IS and affects cash
What are typical one-time non-recurring items?
write-offs, gain/ loss on PPE sale
When is the transaction recorded in cash accounting?
Recorded when payment is received in cash
When is the transaction recorded in accrual accounting?
When the transaction occurs
How is cash accounting accounted for?
cash up rev up
How is accrual accounting accounted for?
accounts receivable up revenue up
accounts receivable down cash up
How is accrual accounting different from cash accounting?
How are assets different from liabilities & equities?
A: resources
L&E: obligations
How are liabilities different from equities?
L: external parties
Eq: internal operations
How are liabilities and equities similar?
Both are funding sources for assets
What items appear on the income statement?
- product it corresponds to must have been delivered within period of IS
- affects business income available to common shareholders
What do you do if the CFS starts with something other than NI?
- convert into CFS format of NI, adjustments, change in WC
- large companies provide reconciliations to do this
- if can’t adjust, use simpler method to project
How is IFRS different from GAAP?
- cash flow statement doesn’t start with NI
- puts items in random locations on CFS-> rearrange
What is the most important statement?
Cash flow statement
Why is CFS most important statement?
shows how much cash is being generated
valuation is based on cash flow
How can you construct a CFS from the other 2?
IS + BS (old, end)
maybe, but ambigious
eg. know PPE but not capex-dep split
How can you construct the balance sheet from IS and CF?
Ambigious
How can you construct the IS from the BS and CF?
Nope- not enough info.
How is IS linked to BS?
- PPE (BS) -> leads to dep (IS)
- debt (BS) -> interest expense (IS)
- Net income (IS) -> dividend added to RE (BS)
How is CF linked to IS?
- NI (IS) -> NI (CFO)
How is BS linked to CF?
- PP&E (BS) -> dep/ capex is calculated from this (CF)
- line items under changes in net working capital eg. accounts payable are all from BS
- PPE sale proceeds (CFI) is from BS
- beginning cash is from BS
- end cash goes to BS
Why 3 statements are needed?
- always a difference between NI and real cash flow
- 3 statements lets us estimate cash flow more accurately
Walk me through IS
shows revenue, expense and tax over a period and ends with net income which is after-tax income
Walk me through BS
shows the assets, liabilities and equity at a specific point of time
- it must balance: assets must equal to liabilities and equities
- assets- resources, liabilites- obligations, equity- funding from shareholders
Walk me through CFS
Shows cash flow changes across operating, investing and financing activities.
Under cash flow from operating activities, adjustments and changes to working capital are shown.
Ends in cash.
