Test 2: Financial Statements Flashcards
classified balance sheet
presents the assets and liabilities of a business in
separate subgroups
Current assets
consist of cash and other assets that will be converted into cash or used up within the normal operating cycle of a business or one year, whichever is longer.
Normal operating cycle of a business
is the average period of time between the use of
cash to deliver a service or to buy goods for resale and the subsequent collection of cash from customers who purchase those services or products
Long-term assets
assets that the company does not expect to convert into cash within the next year or use up during the course of the normal operating cycle, whichever is longer
Property, plant, and equipment
consists of the land, buildings, equipment, vehicles,
furniture, and fixtures that a company uses in its day-to-day operations
Intangible assets
consist of brand names, copyrights, patents, and trademarks that a company acquires
Current liabilities
consist of liabilities that must be settled within the normal operating cycle or one year, whichever is longer.
Long-term liabilities
consist of debt obligations not due to be settled within the normal operating cycle or one year.
What falls under Current Asset?
Cash & Cash Equvils, Accounts Rec, Inventory, Other Current Assets
What falls under long term assets?
Plant Property Equipment, Intangible Assets, Other Long Term assets
What falls under Current Liabilities
Accounts Payable, accured Expense Payable, Short Term Notes Payable, other current liabilities
What falls under long term liabilities
Long term notes payable, other long term liabilities
Gross profit, or gross profit on sales
is defined as the difference between net sales and cost of goods sold and reveals the amount of sales revenue remaining after subtracting the cost of products sold
Net Sales
Are total sales less an amount to record any sales returns and allowances and sales discounts
Total Sales-Sales returns, allowance, discounts
Sales returns and allowances
represent the amount given to the customer for the
return of merchandise or an amount given in lieu of a return
Sales discounts
represent an amount allowed to the buyer for early payment
Ratio analysis
expresses the relation of one relevant accounting number
to another relevant accounting number through the process of division
return on assets (ROA)
Net Income (divided by) Total Assets
Trend analysis
is a process in which we compare a company’s results, or the results of a ratio, over time.
Benchmarking analysis
where the analyst compares a company’s performance, or a ratio, to that of its competitors, or to an industry average
The current ratio
defined as current assets divided by current liabilities
Helps determine how liquid a company is
Solvency
refers to a company’s ability to pay its long-term financial obligations.
debt-to-total-assets ratio
calculated as total liabilities divided by total assets, provides a measure of this risk and is one ratio used to assess a company’s solvency
return on sales (ROS) ratio
calculated as net income divided by net sales
net income/net sales
Contributed capital
is a measure of the capital contributed the stockholders of a company when they purchase ownership shares in the company
Earned capital
is a measure of the capital that is earned by the company, reinvested in the business, and not distributed to its stockholders—that is, its retained earnings
Retained Earnings is calculated as
calculated as retained earnings at the start of the period, plus net income for the period, less any dividends paid during the period.
Free Cash Flow
Free cash flow = Cash flow from operations - Capital expenditures
When is a balance sheet in balance?
Total assets must equal total liabilities plus stockholders’ equity
Return on Sales ratio gives us an understanding of?
- Acompany’s net income per dollar of sales.
- A measure of a company’s financial performance
- A companies operating efficiency
