Technicals (Accounting-Basic)

Question 1

How do the Three Financial Statements Link Together?

Answer 1

-Net income from the income statement flows to the balance sheet (retained earnings) and cash flow statement (top line)

-Depreciation is added back and CapEx is deducted on the cash flow statement. This determines PP&E on the balance sheet

-Financing activities mostly affect the balance sheet and cash from finalizing, except for interest, which is shown on the income statement

-The sum of the last period’s closing cash balance plus this periods cash from operations, investing, and financing is the closing cash balance on the balance sheet

Question 2

If I were to choose one financial statement to review the health of a country, which one would you pick?

Answer 2

Cash Flow Statement, as it highlights profit generation, ignoring the non-cash expenses

Question 3

What two statements would you use to assess a company’s prospects?

Answer 3

Income Statement and Balance Sheet, as you can create the Cash Flow Statement from both of them

Question 4

Walk Me Through How Depreciation Going Up By $10 Would Affect the Statements