JC Notes

Question 1

What are the four basic financial statements?

Answer 1

1. Statement of Financial Position
2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flow

Question 2

What is the statement of financial position?

Answer 2

Reports the assets owned but the company and claims against.

Assets = Liabilities and Shareholders Equity

A= L + SE

As at date

Question 3

What is the statement of comprehensive income?

Answer 3

Reports how well a company has performed its operation (revenue, expenses and income) over a period fo time

Two part statement that that reports changes that have occurred in stakeholders equity from all business activities excepts investment from and distribution to shareholders
Part #1 - Excess of revenues over expense. Referred to as profit or net earnings
Part #2 - Reports comprehensive income

For the period of dates

Question 4

Statement of changes in equity

Answer 4

How much too the company’s net earnings was retained in the business, dividend distributions to owner, the dollar amount of shares issues and repurchased and other changes in equity over a period of time

For the period of time date

Question 5

Statement of Cash Flows

Answer 5

Reports the sources and uses of a company’s cash over a period of time

For the period of time date

Question 6

What is the order of Financial Statements?

Answer 6

1. Statement of Financial Position (Beginning of Period)
2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Statement of Financial Position (End of Period)

Question 7

Give examples of Asset headings

Answer 7

Current Assets - Cash, AR, inventories
Long Term Investments - Shares, bonds, real estate
Property, Plant and Equipment - Buildings, land, equipment
Intangible Assets - Goodwill, Patents, copyrights

Question 8

Give examples of Liabilities headings

Answer 8

Current Liabilities - AP, salaries payable, income and sales tax
Long Term Liabilities - Loans payable, bonds payable, mortgages payable

Question 9

Give examples of what you would find under Share Holders Equity

Answer 9

Contributed Capital - Common shares, preferred shares

Retained earnings - accumulated income

Question 10

What is the operating cycle?

Answer 10

The average time that it takes a company to purchase good, resell the goods, and collect the cash from customers

Question 11

Give examples of Current Assets

Answer 11

Cash
Short term investments
Accounts Receivable
Inventories

Question 12

Give examples of Non-Current Assets

Answer 12

Long Term Investments
Property, plant and equipment
Intangible Assets

Question 13

True or False - Depreciation is listed as a liability?

Answer 13

False - It is listed as an asset with a negative value

Question 14

What is the formulate to calculate Working Capital?

Answer 14

Working Capital = Current assets - Current Liabilities

Question 15

What is the formula for Current Ratio?

Answer 15

Current assets divided by current liabilities

Current Assets
———————
Current Liabilities

Question 16

Statement of Earnings

Answer 16

Reports the results of a company’s operations - the sales of goods and services and the associated expenses of operating the company for a given period

Two major elements

Revenues - increase in the assets that results from the sale of products or services

Question 17

What is on a single step statement of Earnings?

Answer 17

Two categories - total revenues and total expenses

Question 18

What is on a multiple step statement of Earnings?

Answer 18

Gross Margin (gross profit) = Nets sales - Cost of goods sold
Income from operations = Gross Margin - Operating Expenses
Net Income = Income from operations

Question 19

What is the calculation for Net Profit Margin

Answer 19

Net income divided by Sales Revenue

Question 20

Public Companies prepare . . .

Answer 20

A statement of change in equity

Question 21

Private companies prepare . . .

Answer 21

A statement of retained earnings

Question 22

What are the three categories of cash flow?

Answer 22

1. Cash flow from operating activities - Cash flows related to earning income
2. Cash flow from investing activities - related to the acquisition of sale investments and long term assets a such property, plant and equipment
3. Cash flows from financing activities - repayment of debt, common share transactions, payment of dividends

Question 23

What Reporting Standard is mandatory in Canada

Answer 23

International Financial Reporting Standards (IFRS) - Used by private companies

Question 24

What are the two fundamental characteristic in financial information?

Answer 24

1. Relevance - Useful to help predict future events
2. Faithful Representation - Faithful of real world economic events it is intending to portray. Information should be complete and free from error

Question 25

What are the four Enhancing Characteristics?

Answer 25

1. Comparability - comparable information allows external users to identify similarities and differences between two or more items
2. verifiability - information is verifiable when independent parties can reach a consensus
3. Timeliness - information is timely if it is available to users before it loses its ability to influence decisions
4. Understandability - if users who have a reasonable knowledge of accounting and business can comprehend the meaning

Question 26

What are the three Accounting Principles?

Answer 26

1. Historical Cost principle - this principle requires that the activities of a company are initially measured at their cost - the exchange price at the time the activity occurs
2. Revenue Recognition Principle - this principle is used to determine when revenue is recorded and reported
3. Full disclosure principle - This principle requires that financial statements include all information required for the financial statement

Question 27

Define cash basis accounting

Answer 27

Revenue is recorded when it is received, regardless of when it is earned

Question 28

Define accrual basis accounting

Answer 28

An alternative to cash basis accounting that is required by GAAP principles. Transactions are recorded when the occur.

Accrual Accounting is superior to cash base because it links income into measurements to selling