POV Module 4

Question 1

expenses

Answer 1

cost of assets consumed or services used in the process of earning revenue

Question 2

liabilities

Answer 2

obligation of an entity arising from past transactions or debts; borrowing

Question 3

equity

Answer 3

interest to investors after all liabilities are paid

Question 4

assets

Answer 4

resource owned/controlled by a company that are capable of producing future benefits

Question 5

Balance Sheet

Answer 5

snapshot of financial position as of a certain date;

Shows assets, liabilities, and equity

Question 6

Income Statement

Answer 6

income and expenses over a period of time;

Shows net income/loss

Question 7

Statement of Cash Flow

Answer 7

Recon of beginning and ending cash over a period of time

Question 8

Statement of Owner’s Equity

Answer 8

Recon of beginning and ending equity accounts;

Includes profit/loss, stock issued, dividends paid

Question 9

Fair Value

Answer 9

what your assets are worth in current market

Question 10

historical cost

Answer 10

amount originally paid for assets

Question 11

deferred

Answer 11

pertaining to a value that’s not realized until a future date (annuities, taxes, income)

Question 12

Matching Principle

Answer 12

GAAP
matching of expenses and revenues, where expenses are recognized when work/product makes its contribution to revenue
NOT when work is performed

Question 13

4 Principles of GAAP

Answer 13

Historical Cost Principle
Revenue Recognition Principle
Matching Principle
Full Disclosure Principle

Question 14

Historical Cost Principle

Answer 14

GAAP

requires companies to account and report based on acquisition cost rather than fair market value

Question 15

Revenue Recognition Principle

Answer 15

GAAP
revenues are recorded when (a) realized/realizable (b) earned
NOT when cash is received

Question 16

Full Disclosure Principle

Answer 16

GAAP

Income statements should have financial figures that are objective, material, consistent, conservative

Question 17

Financial Statements Required by GAAP

Answer 17

Balance Sheet
Income Statement
Statement of Cash Flow
Statement of Equity

Question 18

depreciation

Answer 18

measurement of the decline in value of fixed assets and allocation to the periods used
affects net income

Question 19

amortization

Answer 19

distribution of cost of intangible assets over the projected useful life

Question 20

impairment

Answer 20

measurement of the unplanned, extraordinary decline in value of assets

Question 21

Fixed Assets

Answer 21

non-current asset - expected to have long life;

Property, Plant, & Equipment

Question 22

non-cash items

Answer 22

reported on income statement but not cash flow;
investing & financing
depreciation
amortization

Question 23

liquidity

Answer 23

available cash over short term; ability to service short-term debt

Question 24

current assets

Answer 24

can be converted to cash or used to pay liabilities within 12 months;
ex: cash, A/R, inventories, portions of prepaid liabilities

Question 25

non-current assets

Answer 25

not easily converted to cash

ex: PPE, investment property, intangible assets

Question 26

preferred stock

Answer 26

stock with a dividend, usually fixed, that is paid out of profits before dividends can be paid on common stock

Question 27

Revenue/Sales xxxxx
COGS (xxxxx)
————————————
Gross Profit xxxxx

Answer 27

Single Step Income Statement

Question 28

Revenue/Sales     xxxxx
COGS                   (xxxxx)
------------------------------------
Gross Profit           xxxxx
Mktg                      (xxxxx)
SG&A                     (xxxxx)
-------------------------------------
Operating Profit     xxxxx
Interest/Debt          (xxxxx)
-------------------------------------
Pretax Income        xxxxx
Taxes                      (xxxxx)
--------------------------------------
Net Income            xxxxx

Answer 28

Multi-step Income Statement

Question 29

Assets
cash xxx
A/R xxx

Liabilities
loan xxx

Equity
xxx

Answer 29

Balance Sheet

Question 30

4 Characteristics of a Liability

Answer 30

(1) any type of borrowing for improving a business that is payable
(2) duty/responsibility to others that entails settlement by future transfer or use of assets
(3) obligates the entity to another
(4) transaction has already occurred

Question 31

Operating Liquidity

Answer 31

ability to quickly convert assets to cash to pay for operating expenses

Question 32

deficit

Answer 32

amount spending exceeds revenue

Question 33

working capital

Answer 33

represents operating liquidity;

= current assets-current liabilities

Question 34

3 Types of Cash Flow

Answer 34

Operations
Investing
Financing

Question 35

Operating Cash Flow

Answer 35

all cash flows to do with actual operations of a business;

includes cash from customers and paid to vendors

Question 36

Investing

Answer 36

Results form activities related to purchase/sale of assets/investments made;
Only appears on cash flow if there is an exchange of cash

Question 37

investing activity

Answer 37

causes changes in non-current assets or involves a return on investment

Question 38

merger

Answer 38

legal union of 2+ corporations into one entity

Question 39

financing

Answer 39

borrowing, repaying, or raising of $

Question 40

financing activities

Answer 40

actions where money is flowing between the company and investors in the company (banks, shareholders);
Ex: issuing shares, buying shares, paying dividends, borrowing cash

Question 41

free cash flows

Answer 41

see what is available for distribution among securities holders

Question 42

Earnings (before interest/tax)
+ depreciation/amortization
-change in working capital

Answer 42

Free Cash Flows