Accrual Accounting and Income Determination
This accounting method records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.
What is accrual accounting?
This financial statement provides a snapshot of a company's financial position at a specific point in time.
What is the balance sheet?
Financial ratio analysis is a key component of this process used to evaluate a company's performance and financial health.
What is financial statement analysis?
Receivables are recorded on the balance sheet as ________.
What are assets?
True or False: Accrual accounting provides a more accurate representation of a company's financial position compared to cash-basis accounting.
True
True or False: Cash equivalents are typically excluded from the balance sheet.
What is false?
A higher debt-to-equity ratio indicates a lower financial risk for a company.
False
True or False: Accounts receivable represent amounts owed to a company by its customers for goods or services sold on credit.
What is true?
The matching principle in accrual accounting dictates that expenses should be matched with corresponding ________.
What are revenues?
The balance sheet equation is Assets = ________ + Owner's Equity.
What is Liabilities?
Name one liquidity ratio used to assess a company's ability to meet short-term obligations.
What are liquidity ratios?
The process of converting receivables into cash is known as ________.
What is accounts receivable?
This financial statement summarizes a company's revenues, expenses, and net income or loss over a specified period.
What is the income statement?
Name one category typically found under current liabilities on a balance sheet.
What are accounts payable, accrued liabilities, short-term debt, etc.?
This ratio measures the proportion of a company's earnings that are distributed as dividends to shareholders.
What is the payout ratio?
Identify one method commonly used to estimate uncollectible accounts.
What is the allowance method or the percentage of sales method?
Identify one example of a non-cash item that could affect income determination in accrual accounting.
What are depreciation/amortization expenses, accrued expenses, prepaid expenses, etc.?
The statement of cash flows is divided into three main sections: operating activities, investing activities, and ________ activities.
What are financing activities?
Identify one profitability ratio used to evaluate a company's overall profitability relative to its revenue, assets, or equity.
What are return on assets (ROA), return on equity (ROE), gross profit margin, net profit margin, etc.?
This ratio measures how efficiently a company manages its accounts receivable and collects payments from customers.
What is the accounts receivable turnover ratio?