Review

Question 1

What are investing activities?

Answer 1

Activities that consist of acquiring and disposing of resources (assets) that a company uses to produce and sell its products or provide its services.

Question 2

Short-term v. Long-term assets

Answer 2

Short-term: Resources used quickly such as inventory

Long-term: Resources used over longer periods of time, such as buildings or equipment.

Question 3

Creditors

Answer 3

Banks and other lenders that provide money that must be repaid.

Use financial accounting information to assess loan terms, loan amounts, interest rates, collateral.

Question 4

Suppliers

Answer 4

Provide supplies, inventory, etc. needed for operations.

Use financial information to establish credit sales terms and to determine long-term commitment to supply-chain relations.

Question 5

Shareholders

Answer 5

The shareholders of large corporations…

Provide resources such as cash to a corporation in exchange for stock ownership.

Not involved in day-to-day business operations.

Rely on financial statement information:
▪ To evaluate management performance
▪ Assess the company’s financial condition
▪ Predict future success

Question 6

Operating activities

Answer 6

The use of company resources to produce,
promote, and sell its products or services.

Operating income = Revenues - Expenses

Question 7

Balance sheet

Answer 7

Lists the company’s investments and sources of financing using the accounting equation.

Assets = Liabilities + Equities

Reports the company’s financial position at a point in time.

Question 8

Income statement

Answer 8

Reports the results of a company’s operating activities over a period of time.

Revenues – Expenses = Net Income

Question 9

Statement of stockholders equity

Answer 9

Reports on changes in equity over a period of time:

• Contributed capital
• Retained earning
• Other stockholder’s equity changes

Question 10

Contributed capital

Answer 10

Amounts from issuing new stock during the period.

Common stock and additional paid-in capital.

Question 11

Retained earnings

Answer 11

Cumulative income since the company began business minus dividends paid out to shareholders.

Question 12

Statement of cash flows

Answer 12

Reports net cash flows from operating, investing, and financing activities over a period of time.

Note!
Operating cash flows differ from net income due to differences in the time that revenues and expenses are recorded and the time the cash is received and paid.

Question 13

Financial statement linkages:

1. How did cash (on the balance sheet) change?
2. How did equity (on the balance sheet) change?
3. How did operations affect retained earnings (on the balance sheet)?

Answer 13

1. Look at statement of cash flows.
2. Look at statement of stockholder’s equity
3. Look at statement of income