Practice Exam Flashcards
Which account is not closed at the end of the year?
Cost of Goods Sold
Appropriate way to present date for a balance sheet
December 31, 2010
The statement which shows the operating, investing, and financing activities of a business is the:
Statement of cash flows
What does the debt to total assets ratio measure?
Solvency
For information to be considered relevant, it should:
Be timely
Confirm or correct prior expectations
Which ratio measures the percentage of assets financed by creditors rather than by stockholders?
Debt to total assets ratio
If a company receives cash from a customer before performing services for the customer, then:
Assets increase and liabilities increase
Bucky Company purchases supplies on account
Increase assets, increase liabilties
What is the purpose of closing entries?
To transfer net income and dividends to retained earings
Accrued expense adjustment
expenses overstated
liabilities overstated
A company worried about their cash levels
LIFO
under the perpetual method, buyers include the shipping cost they pay in ______________
inventory
Prepaid expenses adjustment
Understated expenses
Overstated assets
Deferred revenue adjustments
understated net income
overstated liabilities
Depreciation used to
evenly expense benefit of having that asset
Earings per share and gross profit rate are_______________
profitability ratios
FOB shipping point, who pays?
Buyer
Inventory turnover ratio:
COGS / Average Inventory
Net Sales
Sales - Sales r&a - sales discounts = net sales
Gross profit
Sales - sales r&a - sales discounts - cost of goods sold = gross profit
Profitability ratios
How much money the company is making (EPS)
Liquidity ratios
Ability to pay short-term obligations
Currenr ratio, working capital
Solvency ratios
Ability ro survive
Debt to total assets ratio
Steps in determing inventory quantities
- Take a physical inventory of goods on hand
- Determine the ownership of goods in transit or on consignment
Primary basis of accounting for inventories:
Cost
Ending inventory under FIFO
closest to current value
Inventory under LIFO
farthest from current value
LIFO results in
lower net income
lower income taxes
Beginning Retained earnings to Ending formula
Beginning retained earnings
+ Net income
- Dividends
= Ending retained earnings
Working capital: analyzing liquidity
Positive working capital provides liquidity (can pay off short-term liabilities)
negative working capital - could go bankrupt; does not necessarily mean a company has liquidity problems
Current ratio: analyzing liquidity
Current ratio is a more reliable indicator of liquidity than working capital
97:1 - for every 1 dollar of current liabilities, they have 97 cents of assets
*could be innaccurate because it depends what kind of current assets it has - cash or inventory?
Debt to total assets ratio: analyzing solvency
Measures the amount of financing provided by creditors
Higher the percentage - more riskier the company is and may be unable to pay off debts
Free Cash Flow =
Cash provided by operations
- capital expenditures
- cash dividends
= Free Cash Flow
Earings per share: analyzing profitability
Shows how much income is earned per each share of common stock
Can be used for year-to-year comparrisons but not accros companies
Gross Profit Rate: Analyzing Profitability
Measures how much a company profits off the sale of its inventory
Shows how much a company is able to mark up their inventory & how cheaply they can purchase the inventory
*Can compare year-to-year and within the same industry
Receiving a bank loan
Notes payable is creditted
Other revenues and gains
Interest revenue
Dividend revenue
Rent Revenue
Gain - from sale of PP&E
Other Expenses and Losses
Interest expense
Casualty losses - vandalism and accidents
Loss - from sale of PP&E
Loss - from strikes
