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Statements Flashcards

1
Q

Why does Notes Payable on the Statement of Cash Flows add to the Net Cash balance?

A

Because it reflects the amount borrowed as cash inflow to the business

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2
Q

Which grouping does Credit Card belong to on the Statement of Cash Flows?

Operating, Investing or Financing Activities?

A

Operating Activities

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3
Q

Which grouping does Owner’s Draw belong to on the Statement of Cash Flows?

Operating, Investing or Financing Activities?

A

Financing Activities

NOTE: because it’s not regular salary expense and it affects owner’s equity

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4
Q

Which grouping does A/P belong to on the Statement of Cash Flows?

Operating, Investing or Financing Activities?

A

Operating Activities

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5
Q

What does the SPLIT column of the GENERAL LEDGER show?

A

It shows the offset account for the account for that section of transactions (e.g. Cash on Hand, etc.)

NOTE: For debits, money flows into the section account and out of the offset account and vice versa

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6
Q

Which grouping does A/R belong to on the Statement of Cash Flows?

Operating, Investing or Financing Activities?

A

Operating Activities

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7
Q

Which grouping does Fixed Assets belong to on the Statement of Cash Flows?

Operating, Investing or Financing Activities?

A

Investing Activities

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8
Q

Which grouping does Notes Payable belong to on the Statement of Cash Flows?

Operating, Investing or Financing Activities?

A

Financing Activities

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9
Q

Which grouping does Net Income belong to on the Statement of Cash Flows?

Operating, Investing or Financing Activities?

A

Operating Activities

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10
Q

Which financial statement does the Statement of Cash Flows derive Net Income from?

A

Income Statement

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11
Q

Which financial statement does the Statement of Cash Flows derive A/P from?

A

Balance Sheet

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12
Q

Which financial statement does the Statement of Cash Flows derive A/R from?

A

Balance Sheet

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13
Q

Which financial statement does the Statement of Cash Flows derive the Cash/Total Bank Accounts from?

A

Balance Sheet

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14
Q

In what order are the sections of the General Ledger listed?

A

The same order as on the COA (i.e. 1XXX-8XXX)

NOTE:
1XXX is Assets
2XXX is Liabilities
Etc.

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15
Q

General Ledger review:

What are the three things to be sure to check?

A

1) No duplicate entries (e.g. same dollar amounts from the same people on the same dates are suspicious)
2) Every entry should have a piece of paper or at least a journal entry
3) Every entry should have a customer/vendor name (OR a description for transfers)

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16
Q

Income Statement review.

What are the two things to be sure to check for?

A

1) Month to month consistency - fluctuations can be explained
2) Cash flows make sense - account category assignments clarify cash flows

17
Q

Income Statement review:

What is the most instructive format to do this?

A

Date range: the current quarter

Display columns by: month

18
Q

Balance Sheet review:

What are the three things to be sure to check?

A

1) Balances - TOTAL ASSETS = TOTAL LIABILITIES AND EQUITY
2) Accurate - are all accounts verified (paper trail), current and reconciled?
3) Efficient money flows (e.g. too much money tied up in A/R or Undeposited Funds?)

19
Q

What does a positive A/P on the Statement of Cash Flows mean?

A

Since A/P is a liability account and therefore increases with credits, it means the customer owes money for goods/services received

20
Q

Statement of Cash Flows review:

What are the three things to be sure to check?

A

1) Does the Net Income makes sense per the Income Statement?
2) Do the month-to-month cash flows make sense?
3) Do I understand how the numbers in each activity category (Operating, Investing, Financing) result in the totals?

21
Q

What number on the Statement of Cash Flows (should) tell you how much cash the customer has for a given period?

A

CASH AT END OF PERIOD

NOTE: Seen only in Total Only display view

22
Q

Why does the Statement of Cash Flows show credit card and loan debt as adding to the net cash balance?

A

Because although it’s borrowed money, it is money flowing INTO the business

23
Q

What is the essential thing to understand about the Statement of Cash Flows?

A

It shows cash FLOWS (i.e. the CHANGE in debits and credits as money flows through the business)

It DOES NOT show cash TOTALS

24
Q

STEP ONE durning basic proofing of financial statements: what number should match across all three financial statements (Balance Sheet, Income Statement, Statement of Cash Flows)?

A

NET INCOME on all three statements (Balance Sheet, Income Statement and the Statement of Cash Flows) should all match

25
Q

STEP TWO during basic proofing of financial statements: what number should match between the Balance Sheet and the Statement of Cash Flows?

A

TOTAL BANK ACCOUNTS on the Balance Sheet should match CASH AT END OF PERIOD on the Statement of Cash Flows

26
Q

STEP THREE during basic proofing of financial statements: what three numbers should match on the Balance Sheet?

A

1) ASSETS should equal TOTAL LIABILITIES AND EQUITY

2) Liabilities + Equity should equal TOTAL LIABILITIES AND EQUITY

3) Each section should equal the total of its subtotals (i.e. ASSETS, LIABILITIES and EQUITY should equal the total of all their respective subtotals)

27
Q

Proofing the Statement of Cash Flows: what THREE totals must match?

A

1) Each section total should equal all its subtotals (i.e. Operating, Investing and Financing Activities)

2) Operating Activities + Investing Activities + Financing Activities = NET CASH INCREASE FOR PERIOD

3) Cash at Beginning of Period - NET CASH INCREASE FOR PERIOD = CASH AT END OF PERIOD

28
Q

What are the TWO essential things to know when proofing each of the financial statements?

A

1) Where each and every number came from

2) That each number is accurate

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