Revision Flashcards
Accounting Equation
A = L + OE
Current Assets
Inventory, AR, Cash
Non-Current Assets
PPE, Intangibles, Goodwill, Longeterm Investments
Current Liabilities
“Obligations that we expect to settle within 12 months”
- Accounts Payables
- Unearned Revenue
- Short-term debt
Non-Current Liabilities
- Long-term debt
- Portion of Unearned Revenue
Cashflow Statements divided into 3 sections
Operating, Investing, Financing (payments to shareholders, debtholders, received loans).
Shareholder Equity Statement
Explains the changes of “wealth” over an accounting period.
Dividends process
Dividends declared is recorded on the Shareholder Equity Statement, and balanced on the Balance Sheet under a Dividends Payable line item.
The mechanics of a Shareholder Equity Statement do effect the Balance Sheet.
Debit and Credit
Debit means “left” in Latin, Credit means “right”.
This can be applied to T-accounts. Increase a Liability, it is a credited. The opposite applies for an Asset; it is debited.
Revenue Recognition
Revenue is recognised when a company transfers all the ownership and benefits (rights and responsibilities) of a product to its purchaser.
Return on Equity
Net Income / Shareholder Equity
ROE equation
ROA x Interest Efficiency x Leverage
ROA
NOPAT/Average Assets
Point of NOPAT
(return)
Interest Efficiency
Net Income / NOPAT
- Shows the amount remaining for the company after it has met its interest (from debt) obligations. It is a portion of every dollar of operating profit.
Net Income =
NOPAT - Interest Expense
NOPAT =
Net Income + Interest Expense??
Leverage
Average Assets / Average Shareholder Equity
How is performance of Return on Equity examined?
Against an entity’s Cost of Capital
Operating Efficiency
NOPAT/ Sales
Asset Turnover
Sales / Average Assets
Normal Use Allocation Trigger
Allocation of an assets value over the expected period of normal use.
Definitions of Cost Allocation for: PPE, Intangibles, and Resources?
Depreciation, Amortisation, and Depletion (respectively).
Straight Line Depreciation
(Net Book value - Residual Value) / Useful Life
Impairment Allocation Trigger (REVISE THIS SLIDE)
Impairment tests are typically completed annually. This includes items such as Goodwill and Intangibles are completed
Net Realisable Value (REVISE THIS SLIDE)
Expected Disposal value less any costs required to sell, or fair value.
Disposal Allocation Triggers
Is compared to the expected disposal (or residual value) of an asset at disposal. If a gain occurs, it is recorded on the Income Statement as “Gain”, or vice versa for a “Loss”.
What are the 3 different cost flow assumptions?
FIFO, LIFO, and Weighted-Average Cost.
What effects does FIFO have on a Balance Sheet?
COGS is lower, therefore Net Income is higher.
Also - the Inventory value is greater.
(This all holds assuming a fiscal environment is inflating - prices are rising)
Holding Period
Holdings Periods indicate how many days a company takes to convert a item.
Cash Conversation Cycle
(Receivable collection period + Inventory holding period) – Payable payment period
