INTRODUCTION
TO FINANCIAL
STATEMENTS
A FURTHER LOOK AT FINANCIAL STATEMENTS
THE ACCOUNTING INFORMATION SYSTEM
ACCRUAL
ACCOUNTING
CONCEPTS
Potpourri
100
What are three advantages of a corporation?
What is 1) Easier to transfer ownership 2) Easier to raise funds and 3) No personal liability
100
A financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months
What is the current ratio?
100
What accounts have a normal debit balance?
What is assets, expenses, and dividends
100
Dividing the economic life of a business into artificial time periods
What is the periodicity assumption?
100
What financial statement do we "close" certain accounts to?
What is the balance sheet?
200
Give an example of an internal and external user
Internal: Employees, managers, janitors, etc... External: Shareholders, rivals, government, creditors, etc...
200
Name three of the four different types of assets found on the balance sheet.
What is current assets, long-term investments, PPE (property, plant, and equipment), and intangible assets
200
Journalize: Fem Co. issues $120,000 worth of common stock Fem Co. takes out a $100,000 loan
Cash $120,000 Common Stock $120,000 Cash $100,000 Notes Payable $100,000
200
When do accountants recognize revenues? When do accountants recognize expenses?
1. When the original transaction occurs/when the accounting event happen/when the revenue driver occurs/etc... 2. When it's matching revenue occurs.
200
Which accounts are considered "temporary"? Choose all that apply a. Assets b. Expenses c. Revenues d. Liabilities e. Stockholder's Equities f. Dividends
What is B,C, and F Expenses, Revenues, and Dividends
300
What is the accounting equation and describe each side.
What is assets = liability + shareholder's equity. What you have = assets How you got it = liability + shareholder's equity
300
Calculate EPS: Long-term Assets 5005 Net Income 600 Current Assets 789 Preferred Dividends 320 Current Liabilities 1506 Shares outstanding at the beginning of the year 508 Shares outstanding at the end of the year 476 Long-term Liabilities 207 What is the Earnings Per Share (EPS) for Company Z?
What is $0.57
300
What is the balance of the inventory account after the following accounting events? a. Purchased 500 units for production at $1 a unit b. Sold 500 units at $3 a unit c. Purchased 200 units for production at $2 a unit d. Sold 150 units at $5 a unit
What is a $100 debit (normal) balance? INVENTORY DEBITS: l CREDITS: $500 (a) l $500 (b) $400 (c) l $300 (d) ------------------------------ $100 l
300
What is depreciation on an asset?
Companies report a portion of the cost of a long-lived asset as an expense (depreciation) during each period of the asset’s useful life. As you use an asset, you expense it over the time that you use that asset (useful life)
300
Do we "close" the books before or after compiling the annual report?
What is after?
400
Drummond Company has revealed the following things: a. Utilities Expense of $30,000 b. Taxes of $21,000 c. Sales Revenue of $575,000 d. Wages Expense of $65,000 e. Cost of Goods Sold of $250,000 f. Accounts Receivables of $175,000 What is net income?
What is $209,000
400
Your company has a debt-to-asset ratio of 72%. What does this mean, and interpret the meaning. (Assume the industry standard is 63%)
1. The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of total assets that were financed by creditors, liabilities, debt. 2. A higher percentage indicates more leverage and more risk.
400
Analyze the impact of the following accounting events on the balance sheet: a. Sold $4000 worth of services b. Purchased $99 worth of supplies c. Received $100 for services to be preformed next month d. Paid $25 for next month's rent
What is: a. Assets (Cash) increases, Stockholder's Equity (Retained Earnings [Revenue]) increases b. Assets (Supplies) increases, Assets (Cash decreases) c. Assets (Cash) increases, Liabilities (Unearned Service Revenue) decreases d. Assets (Prepaid Rent Expense) increases, Assets (Cash) decreases
400
Calculate net income for both Carter Inc. and Carr Co. using an accrual accounting system. Carter Inc. provides goods to Carr Co. in the 2015 fiscal year. Carr Co. was billed $575 for the transaction but did not pay until January 2016. It cost Carter Inc. $251 to perform the services and they were paid-in-full by December 31, 2015.
Carter: $575-$251 = $324 Carr: $0-$575 = ($575)
400
What are the three steps of the recording process?
1. Analyze each transaction 2. Enter transaction in a journal 3. Transfer journal information to ledger accounts (Analyze, Journalize, Post)
500
1. Mitchell’s company has revealed the following things: a. Amounts owed by Mitchell’s company to the employees: $4,000 b. Amounts owed by Mitchell’s company to suppliers: $80,000 c. Building owned by Mitchell’s company: $400,000 d. Cash that Mitchell has in the bank: $20,000 e. Clothing items (inventory) Mitchell’s company owns: $20,000 What are total assets? What is total owner’s equity?
What is $440,000 and $356,000
500
Define and find the free cash flow of the following company: Long-term Assets $4,377 Net Income $2,150 Current Assets $753 Operating Cash Flow $1,200 Preferred Dividends $320 Current Liabilities $1,506 Cash Dividends $251 Shares outstanding at the beginning of the year $500 Shares outstanding at the end of the year $476 Capital Expenses $526 Long-term Liabilities $204
a. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base b. $423?
500
GO TO PICTURES 3-54 & 57. Prepare the trial balance.
DEBITS = $28,700 CREDITS = $28,700
500
Adjust the following: a. Our company used insurance for the month worth $600 b. Our company's equipment depreciated $345
a. Insurance Expense $600 Prepaid Insurance $600 b. Depreciation Expense $345 Accumulated Dep. $345
500
Define Generally Accepted Accounting Principles (GAAP) and the characteristic “relevant”
A set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes. Accounting information has relevance if it would make a difference in a business decision. Information is considered relevant if it provides information that has predictive value, that is, helps provide accurate expectations about the future, and has confirmatory value, that is, confirms or corrects prior expectations. Materiality is a company-specific aspect of relevance. An item is material when its size makes it likely to influence the decision of an investor or creditor.
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